Delta
Delta measures how much an option's price changes when the underlying asset moves by $1. It ranges from 0 to 1 for calls and 0 to -1 for puts. Delta also roughly represents the probability an option expires in the money.
Understanding the Concept
• Call deltas are positive (0 to 1); put deltas are negative (0 to -1) • At-the-money options have deltas around 0.50 (or -0.50 for puts) • Deep in-the-money options approach delta of 1 (moves like stock) • Used to calculate hedge ratios and position exposure
Real-World Example
You own a call option with a delta of 0.60. If the stock rises from $100 to $101, your option should increase by about $0.60 (or $60 per contract). This delta also suggests roughly a 60% probability the option finishes in the money at expiration.
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