The delta of an option defines the rate of change of the option relative to the change of the underlying. For example, if an option has a delta of .25 then it change .25 for every $1 change in the underlying. OTM calls have low deltas, so until the underlying begins to approach the price of the underlying, it will not change very much for every $1 the underlying changes. ATM options have approximately .50 delta.
You also have to worry about vega, which defines the rate of change of the option for a point the IV changes. The beta has no direct impact on the price of the option.
On Fri, Apr 23, 2010 at 11:19 AM, gator8899
<gator8899@yahoo.com> wrote:
I have been trading calls for 60 days. I never traded options before. I was just a stock investor.
I need some understanding for why the calls do not move in step with the stock price exactly? I always buy barely out of the money with a 3 month duration. Most of my selections have a high beta.
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