DEFINITION of 'Delta'
The ratio comparing the change in the price of the underlying asset to the corresponding change in the price of a derivative. Sometimes referred to as the "hedge ratio."
INVESTOPEDIA EXPLAINS 'Delta'
For example, with respect to call options, a delta of 0.7 means that for every $1 the underlying stock increases, the call option will increase by $0.70.
Put option deltas, on the other hand, will be negative, because as the underlying security increases, the value of the option will decrease. So a put option with a delta of 0.7 will decrease by $0.70 for every $1 the underlying increases in price.
As an inthemoney call option nears expiration, it will approach a delta of 1.00, and as an inthemoney put option nears expiration, it will approach a delta of 1.00.
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What are the differences between delta hedging and beta hedging?
Hedging is used to reduce the risk of adverse price movements in an asset class by taking an offsetting position in a related ... Read Full Answer >> 
How is a short call used in a bear call spread option strategy?
In a bear call spread option strategy, a short call option is sold at a lower strike price, while a call is bought at a higher ... Read Full Answer >> 
What are the limitations of using delta to hedge options?
Delta hedging is a strategy used to mitigate the risk associated with the price move in the underlying asset of an option ... Read Full Answer >> 
How can you use delta to determine how to hedge options?
The delta of a derivative security tells you the relationship between the underlying security's price and the security's ... Read Full Answer >> 
Why does delta only range from 1 to 1?
Delta measures the sensitivity of an option relative to the underlying asset. It measures the rate of change in the price ... Read Full Answer >> 
What does it mean to say that a straddle is "delta neutral?"
The option Greek delta measures how much an option moves in relation to the changes in an underlying stock price. It's the ... Read Full Answer >>

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