Most novice options traders don’t have a good grasp on Option Greeks, and they tend to only focus on the Greek we call Delta. Delta can be informative when it comes to our option position, but the best traders know to look deeper and will focus a lot on volatility in the stock market.

While adjusting the Delta of an option position to manage risk, many option traders don’t understand how to use volatility to adjust a position in their favor. There are different types of adjustments that can be done that will not only adjust the Delta, but also adjust the position’s sensitivity to the possible volatility of the underlying asset.

Let’s say you are in an option spread called a Butterfly, and the stock market trends up to hit your adjustment point. What should you do?

Well, if you’re trading options, it’s important to follow the volatility chart as well as the price chart.

Think of it this way, if the underlying is trending up, it usually means the volatility is going down, but not always. So when making your adjustment, try an adjustment that benefits from a falling volatility! It’s called a Negative Vega Adjustment, unless you want to prepare for a whipsaw move in the market, then you should do an adjustment that adds positive Vega to your position.

To help make decisions on what type of adjustments you want to make, learn some technical analysis skills. They can be really helpful! Learn to forecast both the price of the underlying and its implied volatility when you are studying the charts.

Don’t forget Vega! Always keep it in mind when making adjustments to your option trades. Ignore it, and you run the risk of damaging any potential for long-term returns.

In conclusion, there are many ways one can neutralize the Delta position of their option spreads. Remember to analyze the volatility graph to decide the best Vega adjustment while comparing your adjustment possibilities. Check out videos and learn more about Delta and Vega at www.sjoptions.com

There are many Option Courses on the market today, but there are not many that teach Trading Options with Volatility.