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Wednesday, October 14, 2015

Setting up an alert based on the Delta of an Option

I usually set up my alerts based on price levels, not greek values. For example, if I have a Credit Call spread at 2100/2105 I may instruct my trading platform to send me an alert when the SPX index moves past 2070 . I want to be alerted early about the potential problem and I have grown accustomed to setting up alerts based on price levels due to its simplicity. In the LTOptions system, a simple, yet accurate technique is detailed that allows you to predict at which price of the index, my option contract will reach X probability of expiring in the money, and that is what I always use. I don't really look at deltas. Probability of Expiring In the Money is a similar statistic but they are not the same thing.

Many traders however, want to be alerted directly based on the Delta of the option they are playing. I have received this question in the past, so here it goes.

This is for the ThinkOrSwim trading platform, which is free to use even if you don't have a real money account with them:

1- Go to the "MarketWatch" tab
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2- Right click on the option whose delta you want to be alerted about. In my case, the NOV 15, 2100 Call. Choose "Create alert" from that contextual menu.
(Click on image to enlarge)

3- The Create Alert dialog pops up. Click on the drop-down list control where "MARK" is displayed by default, and select "DELTA"
(Click on image to enlarge)

4- Finally change the value. If you want to be alerted on a Call option, then you will choose "At or above". In case of the delta value, you have to use a number smaller than 1. For example if you want to be alerted at 25 deltas, you will create your alert specifying 0.25
(Click on image to enlarge)
If you want to be alerted on a Put option instead of a Call, you have to specify "At or below" and use a negative value for delta. In this case -0.25. This would trigger the alert when your Put reaches 25 deltas. This is important because If you don't specify the negative symbol for the delta of your Put alert, or the "At or below" condition, it will be incorrectly set up and therefore useless.


5- The created alert is displayed permanently in the Alert Book panel at the bottom of the view. It won't go from there until it is triggered, manually cancelled or the option expires. From this panel you can quickly monitor all your alerts at once from time to time and see how close/far the current value is.




Your trading platform should have some sort of alerts system. If it is not complex enough to alert you about the Greeks on a specific option contract, then you can always use the ThinkOrSwim platform on a paper money account, which is free to use and can be a nice additional tool in your arsenal.


Related Articles:
Importing a Custom McClellan Oscillator into the ThinkOrSwim platform
Calculating Implied Volatility using Excel
Portfolio Beta Weighted


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