Lesson 1 of 5

Delta -- Your Probability Compass

What Is Delta?

Delta tells you two things at once. First, how much the option price moves for every $1 the stock moves. Second -- and this is the one that matters for us -- it roughly equals the probability that the option expires in the money. A put with -0.20 delta has about a 20% chance of being ITM at expiration. That means you have an 80% chance of keeping the full premium. This is how I pick my strikes.

Delta range

Calls: 0 to +1.0 | Puts: 0 to -1.0 | |Delta| ~ P(ITM)

Delta as a Probability Estimate

When you sell a 0.30-delta put, the market is saying there's roughly a 30% chance the stock drops below your strike by expiration. Flip that: 70% chance you just collect premium and move on. This is how I choose every single strike. I don't guess where the stock is going. I let delta tell me the probability, and I pick the risk level I'm comfortable with.

Lower Delta (0.10-0.20)

+~80-90% chance of expiring OTM (you keep premium)
+Smaller premium -- might only be 0.5-1% monthly yield
+Wider margin of safety if the stock drops
+Best when you're starting out or when the market feels shaky

Higher Delta (0.30-0.40)

–~60-70% chance of expiring OTM
–Bigger premium -- 2-3%+ monthly yield
–Smaller cushion if the stock drops
–Best when you genuinely want to own the shares and want a higher yield

How Delta Changes with Stock Price

Delta isn't set in stone. If AAPL drops from $195 toward your $185 put strike, delta increases (gets closer to -1.0), meaning assignment is getting more likely. If AAPL rallies away from $185, delta shrinks toward zero. This is why checking delta after you open a trade matters -- not just when you pick the strike.

The Wheel Trader's Sweet Spot

I sell most of my puts at 0.20 to 0.30 delta. This gives me a 70-80% win rate while still collecting meaningful premium. When I started with $6K, I stuck closer to 0.20 delta to protect capital. As my account grew, I pushed toward 0.25-0.30 on stocks I really wanted to own.

Reading Delta in Practice

PLTR is at $98. The 30-DTE $90 put has delta of -0.18 and is priced at $1.85. Here's what that tells you: (1) roughly 82% chance PLTR stays above $90, (2) for every $1 PLTR drops, this put gains about $0.18, and (3) if assigned, your breakeven is $88.15 ($90 - $1.85). That's an 10% cushion from the current price. I like those odds.

The short version

•Delta is your probability compass. A -0.25 delta put has about a 75% chance of expiring worthless (you win).
•Sell puts at 0.20-0.30 delta for the best balance of income and safety.
•Delta changes as the stock moves -- keep an eye on it after you open the trade.

Quick Check

1/3

You sell a put with a delta of -0.25. Approximately what is the probability it expires out of the money?

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