Question

Where can I find real time delta calculations for various options?

CBOE has “freeware” that computes Greeks, but even with this utility one has you input multiple variables. This makes it impossible for someone to exploit aberrations in delta numbers given all the input variables.

What do you think?

Answer

I think that most non-professional traders put WAY too much emphasis on the Greeks.

First let me address your need for the information. www.ivolatility.com, www.optionvue.com or www.esignal.com have the data. You can also get it free through most brokerage firms (optionsXpress, TradeKing, Interactive Brokers, TradeStation…).

The deltas are only a theoretical value. They estimate the dollar change in the option for every dollar change in the underlying stock. There is no steadfast rule that says the option has to move in lock-step with the delta. In fact, the delta changes with the rise or fall in the underlying stock. That change in delta is measured by a Greek called gamma.

The Greeks are theoretical values and there is not an “aberration” to exploit. You can’t “hit” the bid and sell a delta that is too high.

Don’t confuse the Greeks with implied volatility. Implied volatility is real and it is embedded in the price of the option. Now there’s something tangible that can be bought or sold! An option can be mispriced and if there is an aberration, it can be exploited – BY A PRO. Large institutions with research teams, complex auto-quote systems and Market Makers do this efficiently. I have written about this in, “Which Option Trading Arbitrage Strategy Is The Best?”

Realize that the quote systems are trying to calculate the Greeks on a best efforts basis. Should they use the option bid, the ask, the last trade, or a blend? The option price used in the calculation is arbitrary and it has a huge impact on the value.

The Greeks should only be used as a guideline to determine the best strategy given your opinion on the duration and magnitude of the expected move in the underlying. There are scenario analysis programs that will calculate your P&L based on various price movements in the stock. You assign probabilities to each expected outcome and you arrive at an expected value for the trade.

I tell my subscribers to focus on getting the market direction right. Then find stocks with relative strength or weakness. Once you have formulated an opinion, analyze the options. Keep the option analysis simple. The options are a reflection of your opinion. Know when your opinion was right and when if was wrong and act according to exit the trade.

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