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The option [[delta]] of a derivative is the ratio between a change in the price of that derivative and the change in | {{Def|Delta|/ˈdɛltə/|n|}}''For the technical term relating to [[hedging]], see [[delta-one]]'' | ||
A voguish way [[celery peddler|celery peddlers]] convey the idea of “difference”. In fairness, “[[delta]]” ''does'' mean, more or less, “difference”, but there’s a less mystifying way of getting across that idea: The word, “difference”. | |||
===Technical answer=== | |||
The [[option]] [[delta]] of a derivative is the ratio between a change in the price of that [[derivative]] and the change in price of the [[underlying]] asset it is a derivative ''[[of]]''. | |||
Delta values range from 1.0 to -1.0. | Delta values range from 1.0 to -1.0. | ||
*A delta of 1.0 gives an exact correlation with the performance of the underlying. A [[call]] option necessarily has positive delta: as the underlying asset increases in price, the call value increases. | *A [[delta]] of 1.0 gives an exact [[correlation]] with the performance of the underlying. A [[call]] option necessarily has positive [[delta]]: as the underlying [[asset]] increases in price, the call value also increases. | ||
*A delta of -1.0 does the exact opposite of what the underlyer is doing. A [[put]] option necessarily has a negative delta. As the underlying security increases, the | *A [[delta]] of -1.0 does the exact opposite of what the underlyer is doing. A [[put]] option necessarily has a negative [[delta]]. Well of course it does: you shorted the underlyer. As the underlying security increases in value, your put goes [[out of the money]]. | ||
*A delta of 0 means the | *A [[delta]] of 0 means the option and the underlyer are not correlated at all: their performance with respect to each other is ''random''. A derivative with a [[delta]] of nil basically ''isn’t'' a derivative of that [[underlying]]. | ||
Technically, the value of the option’s delta is the first derivative of the value of option with respect to the underlying security’s price. | Technically, the value of the option’s [[delta]] is the first derivative of the value of option with respect to the underlying security’s price. | ||
{{greeks}} | {{greeks}} | ||
Latest revision as of 13:30, 14 August 2024
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Delta /ˈdɛltə/ (n.)
For the technical term relating to hedging, see delta-one
A voguish way celery peddlers convey the idea of “difference”. In fairness, “delta” does mean, more or less, “difference”, but there’s a less mystifying way of getting across that idea: The word, “difference”.
Technical answer
The option delta of a derivative is the ratio between a change in the price of that derivative and the change in price of the underlying asset it is a derivative of.
Delta values range from 1.0 to -1.0.
- A delta of 1.0 gives an exact correlation with the performance of the underlying. A call option necessarily has positive delta: as the underlying asset increases in price, the call value also increases.
- A delta of -1.0 does the exact opposite of what the underlyer is doing. A put option necessarily has a negative delta. Well of course it does: you shorted the underlyer. As the underlying security increases in value, your put goes out of the money.
- A delta of 0 means the option and the underlyer are not correlated at all: their performance with respect to each other is random. A derivative with a delta of nil basically isn’t a derivative of that underlying.
Technically, the value of the option’s delta is the first derivative of the value of option with respect to the underlying security’s price.
See also
- Greeks - the home of all things Greek on this site. It’s our own little Athens.
- Alpha
- Beta
- Delta
- Nu - a trick for young players — and those with a degree in Classics.
- Omega — the end of days, and the right time for backtesting
- Vega — not really a Greek at all, but a maudlin singer-songwriter
- Enhanced beta
- Leveraged alpha