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how do I determine the delta of an option? Could I determine the delta by looking at the option chain? Also, is the delta of an option changing from time to time?

Moreover, after I know the delta, could I figure out the best strategy for a combination of a call and a put?

For example, I think a stock will most likely go up in the long-term, so I bought a call option with an expiration date one year later and the strike price is 10% higher than the current stock price. However, I am also worried the stock will go down in the first month. So, I decide to buy a put option with an expiration date one month later and the strike price 10% lower than the current stock price.

If I know the delta, could I figure out the best striking price for my call option and my put option. Also, how do I know how many put contracts I need to fully protect my call option?

I am new to option trading, so I am still learning. Thanks

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How do I determine the delta of an option?

There are several ways.

You can calculate the delta from a option pricing model in a spreadsheet.

There are a number of option pricing calculators online.

The easiest way would be: You mentioned in your other question that you use IBKR. Their option chains in the Trader Workstation offer you the choice of including a data column that contains the delta. Set up an option chain and configure it.

Your question hedging a one year call LEAP that has appreciated 10% with a long put 10% OTM is interesting. I don't mean to sound unwilling to answer but said answer is beyond your level of understanding as well as the space needed to explain how to do so. Delta neutral hedging is a complex subject. With some pricing software you could model (and graph) various scenaries and it would be far easier to understand. In this case, a picture is definitely worth a 1,000 words.

I'd suggest a temporary work around. If your call LEAP is up 10%, roll the strike up, booking the gain and lowering your cost basis. Yes, it will cost you some bid/ask slippage and some commissions - if you're still paying them (peanuts at IBKR) - and you can work out the delta neutral concept over time. Use a spread order for the roll rather than legging out and in.

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  • IB has the delta column and I just added that. Thanks – Jerry Zhang Oct 1 '20 at 21:53
  • For Delta Neutral hedging, I think you understand my point. I predict that a stock will go up in the long-term (one year), however, in the short-term (one month), it possibly will go down. Of course, I will put a long call because I think it will go up in the long-term. But I also want to create a short-term put to hedge it. I try to figure out the best strategy here. – Jerry Zhang Oct 2 '20 at 6:35
  • You said Delta neutral hedging is a complex subject and I possibly need to use some software. Do you know any software which can do that? – Jerry Zhang Oct 2 '20 at 6:36
  • Also, I really do not understand your temporary work around: "If your call LEAP is up 10%, roll the strike up, booking the gain and lowering your cost basis". I understand "roll the strike up", but I don't understand others. Could you give me more details? Thanks – Jerry Zhang Oct 2 '20 at 6:37
  • Utilizing options is like playing chess instead of checkers. There are far more moves (combinations) possible. In order to select the best hedge, you have to understand the different strategies as well as how they perform (P&L) across price and time. Your hedge might be put on at the outset. It might be added after your position appreciates. Either way, it has either a direct and/or an opportunity cost that affects P&L. – Bob Baerker Oct 2 '20 at 11:09

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