Net Options Delta
Net Options Delta is a mathematical formula that calculates the total change in call and put delta in real time. The main advantage to using this tool is being able to quickly understand the direction/trend of the overall options market and how it correlates with price. For example when a market participant buys a call, there is another participant on the other side of the trade selling the call and now forced to hedge their position. The most common way for the seller (market maker) to hedge this position is by purchasing the underlying. This is known as delta hedging. Thus, when a call is bought to open it can create “lift” and help to push the underlying higher. Opposite is true for when a put is purchased; it can create downward pressure on the underlying as the market maker hedges by shorting the underlying.
Understanding the Basics:
- The Blue (call) line will rise as calls are being bought (bullish) and fall as calls are being sold (bearish).
- The Orange (put) line will fall as puts are being bought (bearish) and rise as puts are being sold (bullish).
- The White (call + put total) line will rise as overall positive delta is created and fall as overall negative delta is created.
- The Green (0DTE call) line will rise as same day expiry calls are bought and fall as same day expiry calls are sold.
- The Red (0DTE put) line will fall as same day expiry puts are bought and rise as same day expiry puts are sold.
- The Yellow (0DTE call + put total) line will rise as positive 0DTE delta is created and fall as overall negative 0DTE delta is created.
Changes in Net Option Delta Examples:
- 50 Delta call bought and 50 Delta put bought = Total Delta change is 0 (Blue line rises, Orange line falls, White line flat)
- 50 Delta call bought and 50 Delta put sold = Total Delta change is +100 (Blue line rises, Orange line rises, White line rises)
- 50 Delta call sold and 50 Delta put bought = Total Delta change is -100 (Blue line falls, Orange line falls, White line falls)
NOD Cheat Sheet
- Calls Bought = Blue/Green line moves UP
- Calls Sold = Blue/Green line moves DOWN
- Puts Bought = Orange/Red line moves DOWN
- Puts Sold = Orange/Red line moves UP
- Total NOD Increase = White line moves UP
- Total NOD Decrease = White line moves DOWN