Options Leverage Calculation

Simplified Version / Comprehensive Version

Options Leverage - Definition


Options Leverage is the cash equivalent multiple of one's options position relative to the actual cash price of the underlying asset.



Options Leverage Formula


You can calculate the options leverage multiple of your stock options position with the Options Leverage Formula below:

Options Leverage =
(delta equivalent stock price - option price) / option price





Options Leverage Interpretation


The higher the Options Leverage multiple, the higher the potential reward and the higher the risk of loss. Options leverage is a double edged sword which returns the same multiple on both option trading profits and losses.

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Options Leverage - Applications


Options Leverage multiple is essential in option trading for:

1. Portfolio construction

2. Risk Management

3. Trading System Development





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