Options used to be close to irrelevant for bitcoin's price.
Until now.
At current price levels, hedging large option notionals has a major impact on price.
Here's a quick thread on options 👇
Let's start with the meaning of delta.
Delta is the rate of change of an option's price relative to a change in the price of its underlying.
For example, the price of a 50 delta option will move 50% as much as the underlying.
For practical purposes, think of it as how much of the underlying you have:
- if long 50 delta call on 1 BTC => long 0.5 BTC
- if long 50 delta put on 1 BTC => short 0.5 BTC
- if short 50 delta call on 1 BTC => short 0.5 BTC
- if short 50 delta put on 1 BTC => long 0.5 BTC
An option where the option's strike (i.e. exercise price) is equal to current spot price is known as an at-the-money option (ATM). ATM options have a delta of 50, while deep in the money options have a delta of close to 100.
Can also think of delta as probability. A 50 delta option has a 50% chance of expiring in the money.
For a call, the higher price goes => the more in the money the call => the higher the delta.
Once delta gets close to 100, odds are ~100% the option will expire in the money.