I only look at the delta when I am setting up a call only trade. I like to start a call with about a 50% delta and then let it build toward 100% as the price increases.
For i.e., if I am trading a 10,000 account, one IWM call with a 50% delta means that I net own $124.00 * 100 shares * 50% delta = $6,200 of IWM. So my account is leveraged at about 62%. If I already own 100% of TNA, that puts my total leverage at 162%.
If price goes down, delta actually goes down also, so that protects me a little more on the downside.
But if prices go up, I can count on delta going to about 90% for the last part of the gain. This will take my leverage up to 211%.
Looking at real numbers, a current IWM Sep02 124call (ATM) has a 50% delta and goes for about 1.08. A little pricey, but if IWM jumped about 3% that would put it near 127. A $3 ITM call is currently selling for 3.43 and has a delta of 80%. This still has .58 of TV, but 2.85 of IV. So that gives me a net profit of 2.85-1.08=1.77 or 1.77/6200=2.85%. A little short of the 3%, but close enough.
If I were to hit a good run and IWM advanced 5%, the reults would be much better. If the option was ready to expire before I was ready to exit the trade, I have several choices that I like. 1. Just let the option assign me the shares (margin is so cheap, thank you Janet). 2. Close out the option and buy a deep in the money call with very little TV.
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