** ****Delta – What 3 Important Clues the Options Trading Greeks “Delta” Tell You**

The options “Delta” is one of the important component of the options Greeks. As you might have already known, the options Greeks offer you clues to the likely behavior **Delta 15**

of an option’s price movement in relation to the corresponding price movement of the underlying share.

Besides the delta, the options Greeks also include other components such as the theta, gamma, vega & rho etc. In a nutshell, delta is basically a measure of the change in the option price resulting from a change in the price of the underlying stock. The delta is usually expressed as a decimal value in the range of between 0.00 to 1.00. The other components of the options Greeks are also represented in decimal value. In this article, we would explore the 3 critical information that the options delta could reveal to an options trader so that it would give him or her a clearer picture of the potential price movement of the options so as to help him or her make a better trading decision.

The first information that a delta could reveal is that it could tell the options trader the percentage chance of an option trade. This percentage chance refers to the percentage chance in which a particular option would end up in-the-money. By the way, when an option goes in-the-money, it would be said to have attained “intrinsic value” and thus would be worth some value to the trader when he or she either sells the position or exercise the option. Thus, an option with a delta value of 0.80 would mean that it has a 80% chance of finishing in-the-money.

The second information that the delta provides is the percentage change that a trader would expect of an option position. This means that the delta would determine the percentage change in the options price movement in relation to the corresponding change in the price of the underlying stock. For example, an option with a delta value of 0.60 will move 60% of every one-point movement of the underlying stock. If the underlying stock moves $1.00, then the option would move $0.60. So if an option has a delta value of 0.90, the option would move $0.90 on every $1.00 movement in the underlying stock; I guess you get the point.

The last important information that the delta can provide is the hedge ratio, which is the amount of deltas needed to properly hedge a particular trading position. For example, an investor who wants to implement a delta-neutral strategy may buy up 100 shares of the underlying stock and hedge the position with 2 nos. of at-the-money put option which have a delta value of around 0.50 each. Since the underlying stock has a delta of 1.00 and the delta value of the 2 put options would add up to the del