▲ Delta

In simple terms, ▲ Delta tells you how much an option’s price is expected to change for every $1 move in the stock price.

Call Options (positive Delta): For call options, Delta ranges from 0 to 1.

• A Delta of 0.50 means that if the underlying stock goes up by $1, the call option’s price will theoretically go up by $0.50
• A Delta of 0.80 means the call option’s price will theoretically go up by $0.80 for a $1 increase in the stock price.
• The closer Delta is to 1, the more the option’s price will move in sync with the underlying stock.

Put Options (negative Delta): For put options, Delta ranges from -1 to 0.

• A Delta of -0.50 means that if the underlying stock goes up by $1, the put option’s price will theoretically go down by $0.50.
• Conversely, if the stock goes down by $1, the put option’s price will theoretically go up by $0.50.
• The negative sign indicates the inverse relationship: as the stock price goes up, put options typically lose value (and vice-versa).

We can think of Delta as:

• Sensitivity: It measures how sensitive an option’s price is to movements in the underlying asset.
• Probability: Delta can also be used as a rough estimate of the probability that an option will expire “in the money” or ITM. This would be profitable for the buyer to exercise. For example, a Delta of 0.40▲ suggests a 40% chance of the option finishing in the money at the contract expiration date.

Important points about Delta

• It’s dynamic: Delta is not a fixed number; it changes as the underlying stock price moves, as time passes, and as other factors like volatility change.
• “Moneyness” matters:
  • In-the-money (ITM) options have Deltas closer to 1 (for calls) or -1 (for puts), meaning they move almost dollar-for-dollar with the underlying depending on how close to 1 or -1 that they are.
  • At-the-money (ATM) options (near current stock price) typically have Deltas around 0.50 for calls and -0.50 for puts.
  • Out-of-the-money (OTM) options have Deltas closer to 0, meaning their price is less sensitive to small movements in the underlying.