You must know that the lower the option price, the more likely it is to be out-of-value, and the greater the risk of funds returning to zero. How to select option contracts scientifically and rationally can start with two indicators: premium price and delta.

Premium price

Premium refers to the market price of an option contract. Each option contract on the T-shaped quotation will have a current transaction price, and it changes all the time. Like the current price of a stock, it will continue to change during trading hours.

Delta

Delta is a measure of the impact of changes in futures prices on premiums. It can be regarded as an indicator, just like the price-to-earnings ratio and price-to-book ratio of a stock.

If the absolute value of Delta is very large, then the underlying price will change a little, but if the absolute value of Delta of an option is very small, close to 0, then even if the underlying price changes a lot, it will The price may also remain unchanged.

The Delta of a call option is positive and ranges from 0 to 1; the Delta of a put option is negative and ranges from -1 to 0; the absolute value of Delta of an at-the-money option is close to 0.5.

Double indicator selection method

With a clear understanding of premium and delta, we can combine these two indicators to select option contracts, which can be referred to as "Delta premium" here. "Double indicator selection method".

The greater the absolute value of the Delta indicator, it means that the option contract price is more dynamic, just like a car with good power, the target will start moving quickly as soon as you step on the accelerator; and the smaller the absolute value of Delta, it means that the price of the option contract will be more dynamic. As the option price becomes less dynamic, it is like a classic car that is about to be scrapped. Even if the underlying moves, it cannot get up if the accelerator is not fully stepped on.

The lower the option price, the lower the cost of buying the option and the lower the income from selling the option; conversely, it means the higher the cost of buying the option and the higher the income from selling the option.

Every option trader hopes that the options in his hands can rise and be dynamic, but he does not want to buy options that are too expensive. Generally speaking, the more expensive the option, the greater the absolute value of Delta, which creates contradictions and trade-offs.

At this time, we can set two lines for the absolute value of Delta and the premium: buy an option contract whose absolute value of Delta is greater than a and the option price is not higher than b.

After setting the buying range, follow the principle that the absolute value of Delta should not be as small as possible (such as not less than 30%), and the premium cost should not be too expensive, and select options with high cost performance; at the same time, The same applies to selling contracts (if Delta is not higher than 20%). By selecting contracts in this way, not only will the position not be heavily loaded into deeply out-of-value contracts, but the probability that the expiration value will quickly return to zero will also be greatly reduced.