Delta

A measure of how much an option's price changes for every $1 move in the underlying stock — ranging from 0 to 1 for calls and -1 to 0 for puts.

Delta is the first and most intuitive of the options "Greeks." A call with a delta of 0.50 gains $0.50 in value for every $1 rise in the stock price (and loses $0.50 for every $1 fall). A call with a delta of 0.20 — deep out of the money — barely responds to small stock moves but offers high leverage if the stock surges. A call with a delta of 0.90 — deep in the money — behaves almost like owning the shares outright.

Delta also approximates the probability that the option will be in the money at expiration, in a rough sense. A 0.30 delta call is approximately a 30% probability option. This makes delta useful for strike selection: if you want to sell a covered call with roughly a one-in-four chance of being assigned, you sell the option with approximately a 0.25 delta.

Delta is not static — it changes as the stock price moves, as time passes, and as volatility shifts. The rate at which delta changes with stock price movement is called gamma. Deep out-of-the-money options have low delta and low gamma (price barely responds to the stock). At-the-money options have delta near 0.50 and high gamma — small stock moves produce larger-than-expected delta changes as expiration approaches, which is why short-dated at-the-money options are the most volatile on a percentage basis.

This definition is for informational and educational purposes only. Nothing on Finance Compass constitutes financial, investment, or trading advice. Always conduct your own research and consult a qualified professional before making financial decisions.