DATE: April 08, 2013
Can you explain how to calculate the delta of an iron condor position?
Delta is the change in the option value caused by a one-unit change in price of the underlying stock. The one-unit is typically defined as $1.00 per share change in the stock price. To create an iron condor position, a trader would do the following:
1. Buy the 455 Put at 2.00
2. Sell the 460 Put at 3.50
3. Sell the 465 Call at 4.50
4. Buy the 470 Call at 2.50
Now, let's look at the deltas of each option position and add them together:
-.20 + .35 - .45 + .25 = - .05 total delta
We bought the 455 Put, so the delta remains - .20
We sold the 460 Put so the position delta for that strike is now + .35
We sold the 465 Call so the position delta for that strike is now - .45
We bought the 470 Call so the position delta for that strike remains + .25
To learn more about how to calculate the delta of a multi-part option position, view this week's segment of "Ask the Institute."