Delta

Delta ranges from 0 to 1 for call options and from 0 to −1 for put options. A call option with a delta of 0.6 is expected to rise by about 0.60 when the underlying share price rises by 1. A put option with a delta of −0.4 is expected to rise by about 0.40 when the share price falls by 1.

Delta depends on how likely the option is to finish in the money. Options that are deep in the money have deltas close to 1 or −1, moving almost one-for-one with the share. Options far out of the money have deltas close to zero, barely responding to small price changes. At-the-money options typically have deltas around 0.5 or −0.5.

Delta is also used as a hedge ratio. For example, a trader who has sold 10 call option contracts, each covering 100 shares, with a delta of 0.6, can hedge by buying about 600 shares. This delta hedge protects against small price movements.

Delta changes as the share price moves, as time passes and as volatility changes. The rate at which delta changes is measured by gamma, which is why delta hedges need to be adjusted regularly.