Thalex’s strike determination algorithm has the following key features:
- The algorithm ensures that relevant density of strikes is maintained without creating an overload of strikes.
- The algorithm is based on Black-Scholes call delta.
- The algorithm uses a single volatility for all delta calculations in an expiration.
- The algorithm uses the actual time to maturity, with a minimum of one day.
The strike determination algorithm continuously examines the strike range of every (desired) expiration. Thalex simply keeps adding strikes until all requirements are met:
- There is at least one strike with a call delta <= X;
- There is at least one strike with a call delta >= 1 - X; and
- The difference in call delta between any two adjacent strikes is at most Y.
Expirations that are nearer than two hours are skipped (i.e. no new strikes are created regardless of underlying movements).