Traders, I have been seeing a very strange trend the last few days. This may seem a little fundamental, but I have been shocked by the number of people that do not understand that there is a huge difference between 70 Deltas’s in an ETF and 70 deltas in a big index. I could get into all the technical’s (and may in a longer piece), but I am going to make it short this time.
Think about price action of the underlying in the SPY and the SPX. If the SPY were to move more than 1.00 in a day, that is a HUGE move. If the SPX moves less than 1.00 it is considered unchanged. A 10 point move in the SPX is the same as a 1 point move in the SPY. So if I am short 70 deltas in the SPY, it’s the same as being short 7 deltas in the SPX. As traders, should 7 deltas in the SPX scare us?
No it should not.
So next time one of you option traders has a 70 delta in the SPY, don’t panic! A HUGE move against you would be 1.5 dollars. That’s on 105.00 total. I think you hard core option traders can handle that.
I will be putting on a new trade tomorrow, and will have a mailbag on Friday along with the tip of the week. EMAIL me questions if you have a question, be it about trading, or about life, you would like answered.
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