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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}} | ||