What Is A Delta?
How
does the delta affect the price of my option?
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A delta is the measurement of the
rate of change of the price in an option, compared
to a move in the underlying contract.
A delta is described as a percentage of the
underlying contract. A delta of 20 means that with
all other things being equal, the option price
should move at 20% of what the price of the
underlying commodity moves.
An "out of the money" option has a
smaller delta and it increases as the option gets
more "in the money". An "at the
money" option has a delta of 50 and a deep
"in the money" option has a delta of
100, or just "1". With all things being
equal, a delta of 100 would mean that the option
would move 1 for 1 with the underlying commodity.
This would be a perfect situation though,
because there are other factors affecting the
value of the option, including volatility, time
until expiration and others.
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