The Small Exchange!

Learn more about the Small Exchange futures products in the tastytrade Learn Center!

Take the Course

Options Jive

Monday – Friday | 8:40 – 9:00a CT

Delta Overstatement

Options Jive

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Option sellers profit from the difference in implied volatility (expectations) and realized volatility (reality). Since implied volatility tends to overstate, how has delta performed as an estimate of an option expiring in the money at expiration?

Looking at varying delta puts and calls, we see that over the past ten years delta has understated the likelihood of calls expiring in the money at expiration and overstated that for puts. Since traders cannot forecast future price direction, they can sell strangles which are comprised of both put and calls.

Over the last ten years, delta has overstated the likelihood of strangles expiring in the money at expiration thus presenting a small edge for neutral premium sellers.

Options Jive More installments

See All »

Latest tastytrade Videos As of May 28

Most Shared From the last 30 days