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The Jolly Contrarian’s Dictionary
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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, “deltadoes 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