Delta of a Vertical Spread | Slower than delta of long option?
People often prefer to trade options spreads rather than buying options, since those reduce your cost and have a defined profit and loss but what is the probability of success of a spread?
For example if I buy a Call with 0.5 delta and sell a strike further with delta of 0.25, doesn't that make net delta for the position 0.25(+0.5-0.25), If so that would mean this spread would move slower than a long option. What that means is that if the underlying had moved 100 delta I would have made 50 delta on long option but only 25 delta on the spread.
I understand that there is lower capital requirement and defined risk/reward but is it correct understanding that it will also reduce delta of position and hence reducing the probability of success?
Edit: Updated(wording changed from point to delta) as suggested in answers below.
Thanks in Advance.
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Per your original question, some old timers used to describe owning options as being long a naked option. That can make a discussion confusing. Today, as noted by gamma, the phrase "naked option" is used for "unprotected short option position".
Your phrasing is not clear:
If so that would mean this spread would move slower than a long option. What that means is that if the underlying had moved 100 point I would have made 50 point on naked option but only 25 point on the spread.
If the underlying moves up 1 point then long call would increase by 50 delta and the short call would increase by 25 delta. So change the word point to delta (for 100 point, 50 point and 25 point) and it makes sense and your conclusion is correct. The vertical spread lags the long call.
If instead you meant that the underlying rose 100 points then both options would go to parity with deltas of 100 and you would make 25 delta times the move from current price to the upper strike, offset by time decay. This is far too convoluted a way to assess the spread. The simple answer would be that your profit would be the strike width less the premium paid (debit spread).
The phrase "naked option" is used for "unprotected short option position". That's not the case in the example you are given (you have a long option position).
In your case, buy an (approximately) ATM call then sell an OTM call vs. only buy the ATM call, the spread one actually has a higher chance to profit, but the max profit is limited by the width of the spread. The stock needs to close at strike of long call+premium for you to be profitable at expiration. The less you pay the more likely you end up in profit.
On the other hand if you are comparing selling a naked option vs. selling a spread (buying a further out of money option to protect). It's the naked option that has higher chance of success, but the max loss is undefined.
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