What Is Options Delta? The Options Greeks

What is Options Delta?

The first Greek we will learn about in this video series is Delta, which measures how much an option's price will change for a 1% change in the price of the underlying security or index. For example, a Delta of 0.40 means that the option's price will theoretically move $0.40 for every $1 move in the price of the underlying stock or index.

Call options

Have a positive Delta that can range from zero to 1.00.
At-the-money options usually have a Delta near .50.
The Delta will increase (and approach 1.00) as the option gets deeper in the money.
The Delta of in-the-money call options will get closer to 1.00 as expiration approaches.
The Delta of out-of-the-money call options will get closer to zero as expiration approaches.

Put option Delta

Put options have a negative Delta that can range from zero to -1.00.
At-the-money options usually have a Delta near -.50.
The Delta will decrease (and approach -1.00) as the option gets deeper in the money.
The Delta of in-the-money put options will get closer to -1.00 as expiration approaches.
The Delta of out-of-the-money put options will get closer to zero as expiration approaches.
You also might think of Delta, as the percent chance (or probability) that a given option will expire in the money.

For example, a Delta of 0.40 means the option has about a 40% chance of being in the money at expiration. This doesn’t mean your trade will be profitable. That of course, depends on the price at which you bought or sold the option.

You also might think of Delta, as the number of shares of the underlying stock, the option behaves like.

A Delta of 0.40 also means that given a $1 move in the underlying stock, the option will likely gain or lose about the same amount of money as 40 shares of the stock.

Tune in tomorrow for a video on Delta Hedging.

[kuca]

Your videos are amazing!!! It's easy to understand but doesn't shy away from detail, thanks

[azamarabear]

I'm really loving this option series

[ThisGuy]

Great content, thank you Patrick! This explanation of the delta is very intuitive, I dare to say even better than the explanation given in Hull, it really helped, thanks

[juwright]

Excellent! I wish you would republish your books in ebook format. I like to take those types of books when I travel. Thank you sooo much. 👍🏻

[enricosaccheggiani]

Thanks a lot Patrick. You helped me to understand very interesting questions about my investments

[pzhangd]

Great presentation! beautifully clear~

[Charlesfrostman]

Interesting. May I request a video on non-linear/affine function approximation methods for the option valuation; does the greeks play the same role?
Thanks for the quality content.

[rossfriedman]

Do you use historical volatility to find a spot price for an option?

[rodneytrynor]

delta is 1% of the underlying (stock price?). Would that be referred to as pips(0.01)? Or is that term only used in forex trading.

[DimitrisAndreou]

Hey Patrick. I sort of understand delta, but I discovered that the moment I decide to do something with it, beyond a single underlying on a single currency, it's way over my head. Specifically how to interpret the delta numbers reported from the broker, in relation to the delta of a different product.

Made up example: owning an index in euros, and selling calls on the same index, in a different currency. How to hedge for currency depreciation? The answer probably involves buying forex calls, of a certain delta, equal to some other delta, but translating deltas between products, currencies, lot sizes, is virtually impossible. Once I tried something like this but I could never trust my calculations

[TheMASDrummer]

Back when Patrick was an egg on camera, and not a handsome elite athlete imposter

[Fabiodecastro]

bro too much head, good synthesis but next time more examples/graphs/ and case studies...keep it up currently revising for my finals