delta (redirected from Delta (disambiguation))

Delta

The ratio comparing the change in the price of the underlying asset to the corresponding change in the price of a derivative.

Notes:

This is sometimes referred to as the hedge ratio. For example, with respect to call options, a delta of 0.7 means that for every dollar the underlying stock increases the call option will increase by $0.70.

Put option deltas on the other hand will be negative because, as the underlying security increases, the value of the option will decrease. So a put option with a delta of -0.7 will decrease by $0.70 for every $1.00 the underlying increases in price.

As an in-the-money call option nears expiration, it will approach a delta of 1.00, and as an in-the-money put option nears expiration, it will approach a delta of -1.00.

See also: Call Option, Delta Hedging, Derivative, Expiration Date, Gamma, Greeks, In the Money, Out of the Money

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Delta

The ratio of the change in price of an option to the change in price of the underlying asset. Also called the hedge ratio. Applies to derivative products. For a call option on a stock, a delta of 0.50 means that for every $1.00 that the stock goes up, the option price rises by $0.50. As options near expiration, in-the-money call option contracts approach a delta of 1.0, while in-the-money put options approach a delta of -1. See: hedge ratio, neutral hedge. Call deltas range from 0.00 to +1.00; put deltas range from 0.00 to -1.00. If the call delta is 0.69, the put delta is -0.31 (call delta minus 1 equals put delta; 0.69 -1 =-0.31).

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delta

The change in the price of an option that results from a one-point change in the price of the underlying stock. For example, a delta of 0.5 indicates that the option will rise in price by ¹/₂ point (50¢) for each 1-point ($1) rise in the price of the underlying stock. Call options have positive deltas; put options have negative deltas.