Delta: Difference between revisions
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*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 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 -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 | *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}} | ||
Revision as of 16:08, 28 September 2016
The option delta of a derivative is the ratio between a change in the price of that derivative and the change in prince 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