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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 prince of the [[underlying]] asset it is a derivative ''[[of]]''.  
A {{f|buzzword}} used by wannabes who mean “difference”. In fairness delta does mean, more or less, “difference”, but there’s a less mystifying way of getting across that concept: The word “difference”.
 
===Technical answer===
The {{tag|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.
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 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 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]].
*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 13:54, 18 November 2016

A buzzword used by wannabes who mean “difference”. In fairness delta does mean, more or less, “difference”, but there’s a less mystifying way of getting across that concept: The word “difference”.

Technical answer

The option delta of a derivative is the ratio between a change in the price of that Template: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

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