It is important to understand the type of delta we are dealing with when establishing a position. In this segment, Tom and Tony dive into the important distinction between the two main types of.
Even a delta neutral position can change quickly if we are working with dynamic delta. Static delta is delta that comes from stock or futures. This delta won’t change (it’s static) after price swings in the underlying.
Using this type of delta keeps hedges consistent. If we are short 100 shares and the stock moves up $1, our exposure does not change.
Dynamic delta, however, changes when the underlying changes.
If you are new to options trading or just looking for a refresher, this is definitely a segment you do not want to miss!