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Yesterday you’ve learned the (easy) definition for option Greeks. Today we will dissect the Greek Delta:
Delta: Delta is the Greek that measures the sensitivity of the option price to a change in the price of the underlying asset.
Can’t get any simpler than that. If the price of the underlying asset changes the Delta changes accordingly. It is the ratio at which an option premium changes when the price of the underlying asset changes at a $1.00 increment, up or down, thus, reflecting the direction of the asset price.
Call options have a positive Delta. Put options, conversely, have a negative Delta. How does it translate to our day-to-day trading?
Call options » Positive Delta
If the underlying stock gains +$1.00 in value, the price of the Call option will increase. If the underlying stock loses –$1.00 in value, the price of the Call option will decrease.
Put options » Negative Delta
If the underlying stock loses –$1.00 in value, the price of the Put option will increase. If the underlying stock gains +$1.00 in value, the price of the Put option will decrease.
You can download and print the flashcard HERE. Stay tuned: the Greeks are coming to town.
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OPTIONS GREEKS: DELTA
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What is Delta
Measures the sensitivity of the option premium to a change in the price of underlying.
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