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tasty Mechanics

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

When we are constructing our portfolio, there are many mechanics we can use to improve performance.

For example, delta is worth paying attention to because it approximates the probability the option will expire ITM. Similarly, the probability of expiring OTM can be approximated as 100 minus the option's delta, and the probability of touch can be approximated as 2 times delta.

Additionally, the more occurrences we have, the closer our practical probability will be to its expectation.

Another tip is to avoid trading on illiquid underlyings because of their large price fluctuations and wide spreads, which makes it difficult to close trades.

We should keep the size of our positions consistent to make losses more manageable.

The last tip is to sell rather than buy OTM options to utilize the positive theta and get a higher probability trade.

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