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What is option delta?
Learn what delta estimates, why it is not a guarantee, and why it changes with the option
Prepared by Mark · Primary sources below
Direct answer
Delta estimates how much an option's theoretical price may change for a one-point change in its underlying price, while other model inputs are held constant. It is not a promise of an actual price move, a fixed hedge ratio, or the probability an option will finish in the money. Delta changes as the underlying price, time, implied volatility, and other inputs change
It measures local price sensitivity
A delta of 0.50 is commonly interpreted as an estimated 0.50 change in theoretical option value for a one-point increase in the underlying, holding the other model inputs constant. Market bids and asks can differ from that estimate
The sign reflects call and put behavior
Calls generally gain theoretical value as the underlying rises, while puts generally gain theoretical value as it falls. That is why their deltas commonly have opposite signs
Delta moves too
An option near the money can have a delta that changes quickly as the stock moves. Gamma describes that rate of delta change, which is why a single delta snapshot is not a complete scenario analysis
Sources and further reading
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