As traders, we’re always on the lookout for ways to improve our strategies and maximize our returns. One often-overlooked tool in this quest is forward delta. By understanding how forward delta works and how it can be leveraged, you can gain a significant edge in the market.

Forward delta is a measure of the rate of change of an option’s delta with respect to changes in the price of the underlying asset. In simple terms, it represents how much the delta of an option will change for every dollar move in the price of the underlying asset. Think of it as a kind of “delta decay” – the faster the forward delta, the more the delta of the option will decrease over time.

Forward delta is important because it helps traders understand how much their options will lose or gain value in response to changes in the price of the underlying asset. The higher the forward delta, the more the option’s delta will decrease over time. This means that if you have a long position in an option with a high forward delta, you may want to consider closing it out before it loses too much value.

Now, let’s talk about how surprising growth can benefit your trading strategy. If growth surprises to the upside and fewer cuts are priced, you will benefit from long forward delta. This is because a surprise upswing in growth can lead to a corresponding increase in the price of the underlying asset, which in turn can result in a higher forward delta.

Decay is minimal in the 1-2y tenor/low cost delta replacement. This means that options with longer maturities or lower costs tend to have less delta decay, which can be beneficial for traders who are looking to hold onto their positions for a longer period of time.