Let's look at dream's favorite GS and apply the greeks to his strategy to get the ball rolling.
GS January 2010 Hypothetical Example:
Short 160 PUT
Short 175 CALL
"We can say that a short put has positive deltas, as the seller is hoping for an increase in the price of the stock. Another way of stating this is the seller of the put profits when the value of the underlying is at or above the strike price at expiration, thus the sale of a put produces positive deltas"
Short 160 PUT DELTA: +32.25
"We can say that a short call has negative deltas. Another way of stating this is that the seller of the calls profits when the value of the underlying is at or below the strike price at expiration, thus the sale of a call produces negative deltas"
Short 185 CALL DELTA: -23.66
NET POSITION DELTA: -8.59
For a 5 contract trade the Net Position Delta would be -42.95.
So if GS moves up or down $1.00 the position would lose $42.95 in value
"Delta only works for the first $1.00 movement of the stock, and then the delta is no longer accurate. There is another variable affecting the change in the price of the options as it relates to the movement in the underlying stock - gamma."
To Be Continued...