Delta grows larger with in the money strike prices. Eventually, Delta can become almost equal to 1.00. That means that for the first $1 move in the stock or index the option will grow by $1.00 per share or $100 per contract. The further out of the money a strike price is the smaller delta becomes. An option that is several strike prices out of the money may have a delta as low as .10. That means that for the first $1 move in the stock, these out of the money options will only grow $.10 or $10 per contract.
At first glance it may appear that an in the money strike price is the better deal but delta and option premiums grow together. The higher the delta, the higher the option premium will be compared with options on the same stock and with the same expiration date with a lower delta. A deep in the money option may cost several times the price of an out of the money option. In today's video I will contrast three different strike prices to show the difference between the deltas, option premiums and potential rates of return for the first $1 move in an ETF. What you will find through the example is that the lower deltas offer a higher potential return percentage but they also promise much more potential volatility.
