Market Measures - June 27, 2025 - Options Greeks Deep Dive: Managing Directional Risk with Spread Trading

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Hosts Mike and Nick explored how risk-defined strategies like put and call spreads dramatically reduce Delta exposure compared to naked positions, using data from the volatile March-May period to illustrate the differences. They demonstrated that narrow spreads ($1-5 wide) become "Greek-less" trades with minimal directional exposure, while wider spreads maintain more controlled Delta relative to the underlying's price. The analysis showed that during market stress, naked puts can rapidly expand to 100 Delta (equivalent to 100 shares of stock exposure), while spreads maintain consistently low Delta levels. The key insight was that spread width relative to stock price determines Delta exposure - with wider spreads in lower-priced stocks providing more Greek exposure than narrow spreads in expensive underlyings like SPY.