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Since all options price models predict a delta (i.e., the theoretical ratio of option price change to underlying stock price change), I'm guessing most options investors and market makers are constantly cancelling and replacing orders. So, why don't options stock exchanges like CBOE allow me to place an order including delta? My goal is just to trade at a competitive price without having to watch the market constantly.

For example, I want to buy an "AAPL January $200 Call" for $25 with a 75% delta from an AAPL price of $220. This means I would like CBOE to move my limit order from $25.00 to $24.25 if AAPL falls from $220 to $219.

Would there be any bad consequences if exchanges accepted these orders and everyone started placing them? Even though it's more work for the exchanges, it seems it would reduce replacement orders and level the playing field against high-frequency traders.

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The limiting factor is your broker. It may offer complex algorithms that enable you to customize contingent orders like this or it may only offer basic orders, despite more complex orders being available elsewhere.

If you know that the delta of the call is 75% and you want to buy the call if AAPL drops $1 then simply place your buy order at $24.25 (and avoid having to watch the market). And while it's not a significant effect in this option, if implied volatility changes, delta and option price change so if simply buying or selling an option, operate in the price domain rather than in the derivative domain (Greeks).

I don't see the need for option exchanges to reinvent the wheel to provide the ability to implement such an order. Professional option traders have the software to do analysis like this, and if so inclined, it can send automated orders placed at appropriate prices.

I don't believe that most options investors are constantly cancelling and replacing orders because delta has changed. Price primarily drives their decisions. More sophisticated option traders and market makers who are are delta neutral trading are more likely to utilize the underlying to adjust positions as delta changes.

I also don't see how this "would level the playing field against high-frequency traders." They trade off of price/time discrepancies and they don't care what delta is, nor does it affect how they scalp. A contingent order based on price or a contingent order based on delta has no effect on them.

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  • I am not "cancelling and replacing orders because delta has changed". I am cancelling and replacing orders because the underlying price has changed. When AAPL falls by $1, my limit price on AAPL should fall by $0.75. Assume delta was, is, and always will be 75%.
    – bobuhito
    Sep 16, 2018 at 21:28
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    Oh-kay, if you are cancelling and replacing the order because the price of the underlying has changed and not because delta has changed then there is zero need for an order type based on the change in delta. All you are asking for is a more complex method of order placement when it is not needed.
    – Bob Baerker
    Sep 16, 2018 at 22:26
  • PS There is no such thing as "Assume delta was, is, and always will be 75%". Delta changes because of change in the price of the underlying, the passage of time, change in implied volatility and even carry cost.
    – Bob Baerker
    Sep 17, 2018 at 12:01
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Options exchanges do allow it, some. If you really want to get into it you have to look at the order types available at each exchange.

TD Ameritrade allows forming conditional orders this way in their ThinkOrSwim platform and when smart routing is enabled, I've seen only two exchanges accept the order (for example NYSE and BOX).

Basically when delta = .75 buy +1 200 STRIKE call @ limit $25.00, or even MARK +/- 1.00 , Good Till Cancel

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  • I use thinkorswim and they don't allow what I want. Please realize that I am not triggering an order when delta becomes 0.75. Instead, delta already is 0.75 and I want to place an active order (i.e., an order visible to all customers on some exchange) in which the displayed limit price adjusts by that 75% with the underlying price (just as if I had manually cancelled and replaced the order whenever the underlying price changes).
    – bobuhito
    Sep 16, 2018 at 21:17
  • @bobuhito In thinkorswim you can do Order Triggers Order and chain them. It also may require you rethink how to solve the issue you are really trying to solve.
    – CQM
    Sep 16, 2018 at 21:37
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I think your question is being misunderstood. What you want seems exactly like the Pegged-to-Stock order at Interactive Brokers. Apparently it can be natively processed by the Boston Options Exchange. It makes sense if the goal is to trade at a good price relative to the instantaneous fair value of the option (e.g., when the option bid-ask spread happens to shrink).

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  • Thanks for being the only one to understand my question. Yes, IB does allow my order to be placed, but I see contradicting information on IB's website about whether IB simulates the order or truly sends the delta to Boston. So, do you (or does anyone) have a reference from the "boxoptions.com" website to show that Boston truly accepts this special order? If so, I'll mark yours as the answer since I'd be wrong in my original assumption.
    – bobuhito
    Sep 17, 2018 at 0:27

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