What is Option Delta? (5mins.) | Options for Beginners

"Delta (Δ) represents the rate of change between the option's price and a $1 change in the underlying asset's price. In other words, the price sensitivity of the option relative to the underlying.

The Delta of a call option has a range between zero and one, while the delta of a put option has a range between zero and negative one.

For example, assume an investor is long a call option with a delta of 0.50. Therefore, if the underlying stock increases by $1, the option's price would theoretically increase by 50 cents." - Source: Investopedia.

Yawn. Well, okay great, but so what?

This is the kind of standard text-book definition that any Google search for "Option Delta" will spit out.

In fact, that's exactly what I did....

But, what are the takeaways from understanding Delta that we can practically utilise in our day to day trading?

Delta is arguably the most important Greek and it's important that we understand how it should be interpreted.

Let's break it down:

i. Delta as the probability of an option expiring in the money (ITM).

ii. Delta as the probability of the option strike being touched AT SOME POINT prior to expiration.

iii. Delta as a hedge ratio.

iv. The additive properties of option Deltas in a position.

Video Chapters:

0:00 Intro.
0:16 Definition of Delta.
0:33 Call option Deltas.
0:55 Put option Deltas.
1:21 Practical trading applications of Delta.
1:35 i. Probability of an option expiring in the money (ITM).
2:23 ii. Probability of a stock touching an option's strike price during the course of a trade.
3:24 iii. Delta as a hedge ratio.
4:29 iv. Additive properties of Delta.
4:52 Summary
5:22 Outro.
5:34 Video bloopers and out-takes.

#Delta #Options #OptionGreeks

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DISCLAIMER: This channel is designed for informational and entertainment purposes only and should not be seen as providing professional investment advice.

[TheOptionAlchemist]

If you have any questions about Delta, please drop them here in the comments section. I'll respond to them all personally. Cheers.