Options | Derivatives
Delta (Options)
"Delta measures the sensitivity of an option's price to a 1-point move in the underlying. It is the most fundamental options greek."
In-Depth Definition
Delta is the first-order derivative of the option price with respect to the underlying price. It ranges from 0 to 1 for calls and -1 to 0 for puts. A call with a Delta of 0.60 will gain approximately $0.60 if the underlying rises by $1. Delta is also interpreted as an approximate probability that the option expires in the money (ITM). An ATM call has a Delta of approximately 0.50. Delta itself varies with the underlying price (Gamma measures this variation). Delta also allows calculation of the delta-equivalent underlying position needed to hedge an option: 100 calls with Delta 0.50 equals 50 shares. This technique is fundamental in market making.
StarQuant Insight
StarQuant integrates Delta calculation in its Options Desk to display the total directional exposure of an options portfolio in real time, allowing quick identification of the need for delta-neutral rebalancing.
Pro Tip
When buying directional options, prefer Deltas between 0.40 and 0.60 (ATM) for a balance between cost and sensitivity. Very OTM options (Delta < 0.20) are cheaper but require a much larger move to be profitable.