Trade Logic Unlocked

Long Delta or Short Delta?

Trade Logic Unlocked

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

Last week, we opened up a discussion around how to build an assumption. In that piece, though, we did leave a bit to be desired in ultimately establishing our directional bias in the market. As a result, we finish the job today, by laying out the statistical support for both short delta and long delta portfolios. While short delta positions have a handful of mathematical reasons for their support, from negative skew to positive kurtosis, long delta positions primarily rely on the positive drift in the market that stems from Geometric Brownian Motion.

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