what is a 25 delta call means? for a 25 delta call and 10 delta call option , which one has higher premium ?
Found this on Pg 246 of my Currency Risk Mgmt reading (2014 - it was in Book 5 - but should be part of a different volume - and considering the reading has not changed the same should be present in your reading as well)
> 50 delta call = ITM
~50 delta call = ATM
<= 25 delta call = OTM
Call Delta = (1 - Put Delta)
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Assuming that both options have the same expiry (and are both calls or both puts) then the higher delta option will always have the higher premium (so in this case the 25 delta will have more premium than the 10 delta).
Think of delta as the likelihood of the option expiring āin the moneyā. For example if the stock is trading at Ā£100 and the option strike is Ā£100 then the option is around 50 delta because itās 50/50 whether the stock will be higher or lower than its current price of Ā£100 at expiry. If there is another option with Ā£120 strike it will have less delta because the stock price will need to rally more than Ā£20 in order for the option to expire in the money. If there is less likelihood that an option will expire in the money then it is less valuable so should have less premium.
i think calling delta āstandardā is pushing the definition a little.
http://www.autobahnfx.com/options_popup.html
http://about-neo.ubs.com/images/content/7/Options-DualModePricer-large.png
the fx reading isnāt the greatest is itā¦
I swear I just read that a currency overlay portfolio was like a farmyard.
anyway, i did have a questionā¦ gamma is not mentionedā¦
surely ATM you pay a lot of gamma, but at 25 delta the gamma is non-existant?
Does not the delta need to be 1 to be in the money? It says in the text book: "- Delta will be 1.0 only at expiration and only if the option expires in-the-money. "
> Does not the delta need to be 1 to be in the money? - No
> Delta will be 1.0 only at expiration and only if the option expires in-the-money. - there is the case when option expire, if option expires ITM, delta will be 1
Put ITM Delta between -1 and -0,50
Call ITM Delta between 1 and 0,50
OTM Put between 0 and -0,50
OTM Call between 0 and 0,50
around -0,50 ATM Put
around 0,50 ATM Call
In page 406 of volume 5, it says FX options quotes usually in terms of 25-delta and 10-delta options ( ie a delta of 0.25 and 0.10 respectively). The 10-delta options is deeper OTM and hence cheaper.
there were no mentioning about the call or puts.
why 10-delta is deeper OTM?
Think about the shape of an optionās price curve.
Where is it flatter (lower delta)? Where is it steeper (higher delta)?
Hello magician,
Thanks for your insightful cues.
I got it cleared with some graphic presentations with the interplay btw strike & delta eventually.
best!
Would you mind sharing the logic? Thanks. Still not sure what a 25 delta would be.
Youāre quite welcome.
I find people learn this stuff best when they figure it out for themselves . . . with a little nudge now and then.
To you as well.
Quite right. The impression left deeper and brings in extra layer of utility in seeking out the logic behind 
call delta ranges from 0 to 1, with 0.5 at strike price, 0 to be OTM.
the lower delta, the further away from strike/ITM, the lower option value or cost.
if my little note does not help, the above link works pretty well on me. For your reference 2.
Basically what it means is: if the underlying moves by $1, the value of your option will move by c. 0.25 x $1 (the gamma changes as well, so this isnāt precise but a close estimate).
A delta of 0.25 means the call is OTM (>0 and <0.5). Delta is highest deep in the money and close to expiration, and lowest deep OTM and close to expiration. Gamma is highest ATM and at expiration