How Does the Relationship between Delta and the Probability of an Option Expiring In-the-Money Affect Trading Strategy? ▴ Learn

How Does the Relationship between Delta and the Probability of an Option Expiring In-the-Money Affect Trading Strategy?

For European options, Delta is often used as a rough approximation of the probability that the option will expire in-the-money (ITM). A high Delta (e.g.

0.70) suggests a 70% chance of expiring ITM. This relationship influences a trader's decision on where to place limit orders.

Options with a high ITM probability are generally more liquid and have tighter spreads, leading to lower slippage. Traders often focus on these contracts for lower execution risk.

How Does the Moneyness (ITM, OTM, ATM) of an Option Affect Its Bid-Offer Spread?

Why Do Out-of-the-Money Options Often Have Wider Spreads?

How Does the Distance between the Stop Price and Limit Price Affect Execution Probability?

What Is the Relationship between the Option’s Delta and Its Probability of Expiring In-the-Money?