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Delta

Delta is a measure used in options trading to determine how much the price of an option will change in response to a $1 change in the price of the underlying asset. It reflects the option’s price sensitivity and is expressed as a value between 0 and 1 for call options, and 0 and -1 for put options. A delta of 0.5 means the option will move by $0.50 for every $1 movement in the underlying stock. Higher deltas indicate a stronger correlation between the option price and the underlying asset.

Example

A call option with a delta of 0.7 means that for every $1 increase in the underlying stock's price, the option’s price will rise by $0.70.

Key points

• Delta measures the sensitivity of an option's price to changes in the underlying asset.

• Call options have positive delta, while put options have negative delta.

• Delta is useful for gauging price movement and risk.

Quick Answers to Curious Questions

A delta of 0.5 means the option price will change by $0.50 for every $1 change in the underlying asset's price.

Delta helps traders understand how an option’s price will change in response to movements in the underlying asset, informing risk management.

Call options increase in value as the underlying asset's price rises, giving them positive delta, while put options decrease in value as the price rises, giving them negative delta.