Home / / Option Greeks

Trade options FREE For 60 Days when you Open a New OptionsHouse Account

The option's delta is the rate of change of the price of the option with respect to its underlying security's price. The delta of an option ranges in value from 0 to 1 for calls (0 to -1 for puts) and reflects the increase or decrease in the price of the option in response to a 1 point movement of the underlying asset price.

Far out-of-the-money options have delta values close to 0 while deep in-the-money options have deltas that are close to 1.

As the delta can change even with very tiny movements of the underlying stock price, it may be more practical to know the up delta and down delta values. For instance, the price of a call option with delta of 0.5 may increase by 0.6 point on a 1 point increase in the underlying stock price but decrease by only 0.4 point when the underlying stock price goes down by 1 point. In this case, the up delta is 0.6 and the down delta is 0.4.

As the time remaining to expiration grows shorter, the time value of the option evaporates and correspondingly, the delta of in-the-money options increases while the delta of out-of-the-money options decreases.

The chart above illustrates the behaviour of the delta of options at various strikes expiring in 3 months, 6 months and 9 months when the stock is currently trading at $50.

As volatility rises, the time value of the option goes up and this causes the delta of out-of-the-money options to increase and the delta of in-the-money options to decrease.

The chart above depicts the relationship between the option's delta and the volatility of the underlying security which is trading at $50 a share.

Open an account at OptionsHouse.com and get 100 commission-free trades + free virtual trading tool!

Your new trading account is immediately funded with $5,000 of virtual money which you can use to test out your trading strategies using OptionHouse's virtual trading platform without risking hard-earned money.

Once you start trading for real, your first 100 trades will be commission-free! (Make sure you click thru the link below and quote the promo code '60FREE' during sign-up)

Click here to open a trading account at OptionsHouse.com now!IntroductionCall OptionPut OptionStrike PriceOption PremiumMoneynessExpirationExercise & AssignmentGetting Started in Options TradingFinding an Options BrokerOptions ChainOrder EntryOptions TransactionsTypes of OrdersMargin Requirements

Buying OptionsSelling OptionsOptions SpreadsOptions CombinationsBullish StrategiesBearish StrategiesNeutral StrategiesSynthetic PositionsOptions ArbitrageStrategy FinderStrategy Articles

Home | About Us | Terms of Use | Disclaimer | Privacy Policy | Sitemap

Copyright 2016. TheOptionsGuide.com - All Rights Reserved.