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IMHO, an option with a delta of 0.2 has the best leverage, provided that you have the market direction right, and that you are not EXPECTING TOO MUCH of the market in too short a time frame, eg. An option with a delta of 0.2 1 week from expiry is NOT a good buy (but a good-bye, excuse the weak pun :)), but an option with three months to run with the same delta offers very limit4ed downside from movements in the underlying combined with excellent upside gearing.
Try and run some simulations.
I will post some if I find time to do them today.
Happy trading
Zaheer
-----Original Message-----
From: ALTAF JUMMA [SMTP:ASHLEYJUM@xxxxxxxxxxxxxxxx]
Sent: Monday, 29 September, 1997 3:17 PM
To: RealTraders Discussion Group
Subject: REALTRADERS DIGEST-OPTIONS- MR TROY KELLEY
HI,
Mr. Troy Kelley inquired about option delta, etc. - I believe that delta for
deep in the money option is 1, for at the money option or slightly in the
money option is .5, for out of the money option, it decreases approaching
zero for deep out of the money option.
You are correct in saying that out of the money option offer greater
leverage but it has less chance of becoming profitable when buying
options-deep in the money option offers the least leverage but greater odds-
in moat cases, the recommended strategy is to buy at the money option which
offers a good combination of leverage and odds.
For at the money option, a delta of .5 means a profit target of .5(of 3-6
OEX points)- Your system has to be very good to make money buying option
during the last week of expiration.
Troy, hope this will help,
Happy Trading - Ashif
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