Delta: Difference between revisions
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''For the technical term relating to [[hedging]], see [[delta-one]]'' | {{a|glossary|}}''For the technical term relating to [[hedging]], see [[delta-one]]'' | ||
A {{t|buzzword}} used by [[celery peddler|celery peddlers]] who mean “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”. | A {{t|buzzword}} used by [[celery peddler|celery peddlers]] who mean “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”. | ||
Revision as of 14:59, 13 June 2019
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For the technical term relating to hedging, see delta-one
A buzzword used by celery peddlers who mean “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
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