Option delta

Delta measures how much an option's price is expected to move for a $1 move in the price of the underlying stock. A call option with a delta of 0.60 should gain about $0.60 in value if the stock rises by $1, all else held equal, while a put option with a delta of negative 0.40 should gain about $0.40 in value if the stock falls by $1, since put values move opposite to the underlying.

Delta ranges from 0 to 1 for calls and 0 to negative 1 for puts, and it also serves as a rough estimate of the probability that an option will finish in the money at expiration, though it is not an exact probability measure. An option deep in the money tends to have a delta close to 1 or negative 1, moving almost dollar for dollar with the stock, while an option far out of the money has a delta close to zero, barely reacting to small moves in the underlying. An option struck close to the current stock price typically has a delta near 0.50.

Delta is also the basis for delta hedging, a technique where a trader offsets the delta of an options position by buying or selling shares of the underlying stock, aiming to make the combined position neutral to small moves in the stock price. Market makers who sell options to clients rely heavily on this kind of hedging to manage their risk, and delta is generally the first of the option pricing sensitivities, sometimes called the option's Greeks, that traders check when evaluating how a position will behave.