Delta Delta

Iginla2010

As delta = Change in Option/ change in stocks, where is it that if stock price decreases, delta will decrease (p. 213 in Schweser Book 4) and vice versa where stock price increases?

Many thanks!

mik82

it makes sense really, if you hold an option, and it's way out of the money, a small change in stock price won't make any difference to the value of that option. i.e. delta~0

on the other hand, if stock price is currently close to strike, and it moves a little bit, the option may come into the money, then if it moves another $1 your option will be worth close to another $1! i.e. delta~1

For delta to go from 0 to 1 it has to move as the stock price moves, rate of this change of delta is gamma.

jmh530

in general, the closer you get to the strike, the greater the delta..look at gamma too. these alwa come up. CFAI has good explanations.