| The options "delta" is one of the important component | | | | expect of an option position. This means that the delta |
| of the options greeks. As you might have already | | | | would determine the percentage change in the options |
| known, the options greeks offer you clues to the likely | | | | price movement in relation to the corresponding |
| behavior of an option's price movement in relation to | | | | change in the price of the underlying stock. For |
| the corresponding price movement of the underlying | | | | example, an option with a delta value of 0.60 will move |
| share. | | | | 60% of every one-point movement of the underlying |
| Besides the delta, the options greeks also include other | | | | stock. If the underlying stock moves $1.00, then the |
| components such as the theta, gamma, vega & | | | | option would move $0.60. So if an option has a delta |
| rho etc. In a nutshell, an options delta is basically a | | | | value of 0.90, the option would move $0.90 on every |
| measure of the change in the option price resulting | | | | $1.00 movement in the underlying stock; I guess you |
| from a change in the price of the underlying stock. The | | | | get the point. |
| delta is usually expressed as a decimal value in the | | | | The last important information that the options delta |
| range of between 0.00 to 1.00. The other components | | | | can provide is the hedge ratio, which is the amount of |
| of the options greeks are also represented in decimal | | | | deltas needed to properly hedge a particular trading |
| value. In this article, we would explore the 3 critical | | | | position. For example, an investor who wants to |
| information that the options delta could reveal to an | | | | implement a delta-neutral strategy may buy up 100 |
| options trader so that it would give him or her a clearer | | | | shares of the underlying stock and hedge the position |
| picture of the potential price movement of the options | | | | with 2 nos. of at-the-money put option which have a |
| so as to help him or her make a better options trading | | | | delta value of around 0.50 each. Since the underlying |
| decision. | | | | stock has a delta of 1.00 and the delta value of the 2 |
| The first information that an options delta could reveal | | | | put options would add up to the delta value 1.00 too, |
| is that it could tell the options trader the percentage | | | | this would thus establish a delta-neutral trading position. |
| chance of an option trade. This percentage chance | | | | As mentioned earlier, the options delta is an important |
| refers to the percentage chance in which a particular | | | | component of thethe options greeks which could tell |
| option would end up in-the-money. By the way, when | | | | an options investor how to determine the likely price |
| an option goes in-the-money, it would be said to have | | | | movement behavior of the options in relation to the |
| attained "intrinsic value" and thus would be worth some | | | | corresponding price action of the underlying stock. The |
| value to the options trader when he or she either sells | | | | delta basically determines the percentage chance, the |
| the options position or exercise the option. Thus, an | | | | percentage change and the hedge ratio requirement |
| option with a delta value of 0.80 would mean that it | | | | of an option trading position. Thus, the options trader is |
| has a 80% chance of finishing in-the-money. | | | | advised to take a look at this important component of |
| The second information that the options delta provides | | | | the options greeks the next time he or she make a |
| is the percentage change that an option trader would | | | | options trading decision. |