Lesson

Delta scaling drill | Options Educator

Adjust contract count to maintain a target portfolio delta in motion.

What you'll practice

  • With the stock at $100.00, set the shares you hold until net delta is within 5 shares of zero.
  • The stock rises to $105.00. Move it there, then change the shares until net delta is back within 5 shares of zero.
  • Predict: after "Stock down $5", with no trade, what happens to net delta?

In this lesson

What is Delta?

  • Delta = option's sensitivity to stock movement
  • Each contract controls 100 shares
  • Portfolio delta = sum of all position deltas
  • Positive delta = bullish, negative = bearish

Delta Neutral Trading

  • Delta neutral = no directional bias
  • Hedge with stock to offset option delta
  • Delta changes as price moves (gamma)
  • Must rebalance to stay neutral

Position Sizing with Delta

  • Size by delta, not just contracts
  • Same delta = same directional exposure
  • OTM needs more contracts for same delta
  • More contracts = more leverage = more risk

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