Delta
Delta estimates how much an option's price may change for a small change in the underlying asset price, all else equal.
✦ Key Insight
It is used for directional exposure, hedging, and position-risk measurement.
✕ Common Misconceptions
Delta changes as price, time, and volatility change and is not a fixed hedge ratio.
Detailed Explanation
In Practice
Dig Deeper
Call Option
A call option gives its holder the right, but not the obligation, to buy an underlying asset at a specified strike price before or at expiration, depending on the contract style.
Put Option
A put option gives its holder the right, but not the obligation, to sell an underlying asset at a specified strike price before or at expiration, depending on contract style.
Option Premium
Option premium is the price paid by an option buyer and received by an option seller for the contract.
Implied Volatility (IV)
Implied volatility is the volatility level that an option pricing model backs out from the option's current market price.
Gamma
Gamma estimates how quickly an option's delta changes as the underlying price changes.