[Proof Of Concept] Why LEAPS Options With Low Delta Works

I am absolutely delighted to receive this message from one of our readers:

“Jason, I did an experiment.

Scenario 1
Buy 2 option contracts
Delta: 0.8
Strike price: $35
Premium paid: $11× 200 = $2200
Expiration date: Jan 2024.

Scenario 2
Buy 6 option contract
Delta: 0.39
Strike price: $47
Premium paid: $3.75 x 600 = $2050
Expiration date: Jan 2024

Yesterday, when Pfizer spiked up 11%, the lower delta made more profit by 40%, now I know why you do low delta.

Thanks for the information.”

From the example quoted above, the total premium paid was almost the same and expiration date was the same as well. The only differences were the delta and strike price. When the share price increases by 11%, the contract with a lower delta actually made 40% more profit than the contract with a higher delta. This is a proof of concept that a LEAPS contract with a lower delta works and works better than one with a higher delta.

When I share this strategy, I was met with scepticism. There were people who questioned this strategy, why I choose to buy an option with low delta (low chance of hitting strike price) and said I don’t understand how options work. But, these people missing one critical point that premium increases with the share price and the long expiration of LEAPS gives us enough time for the share price to increase and plenty of profits can be made with an increase premium price, even way before the share price reaches the strike price.

Related Articles:
I Was Laughed At When I Told Them I Bought LEAPS With A Low Delta
How Does LEAPS Works And How I Use LEAPS To Maximise Gains?
Why I Buy LEAPS With A Low Delta?
Understanding How CALL Option Works


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