Delta of options? between, question, material, summarize, like

joehogue

Hi guys this may be my last question this year so please help me out! ^^
Can someone please summarize the delta of calls and puts and of in-the-money and out-of the money ones?
I know this is L2 material but just seems like the hardest thing in the world to memorize. All that from 0 to -1 and from 1 to 0 and all in between just confuses the hell outta me.
Thanks and good luck all!!!

mar350

HOw about call options of a bull spread? if one of the option is in the money while the other is not? Is the delta just the sum of two option

aidebaobao

call options are pos from 0 to 1 and the closer to expiration in the money calls will be close to 1

put option are neg from 0 to -1 and the closer to expiration in the money puts will be close to -1

delta measures the correlation b/w the changes in option prices and the underlying, so for puts for example will increase in price as the underlying price falls (this is why the delta is negative - b/c the price change is negatively correlated with the price change of the underlying)

now for options that are at the money near expiration these jump back and forth b/w 0 and 1 b/c if the price of the underlying ends up below the strike for a call there is no change in price in the option b/c there is no value in holding an out of the money option (so the correlation is 0). however once the price of the underlying moves above the exercise price (and again this is near expiration) the value ov the call is going to increase nearly in step with the price of the underlying (so the correlation is very close to 1).

thommo77

Wow you guys made it sound easy. Guess i am freaking out lol.
Thanks all and best of luck on game day!

Chuckrox

Freakingout, are you freaking out?














YEEEEEEEEEEEEEEEEEEAAAAAAAAAHHHH

in the money call = 1
out of the money call = 0

in the money put = -1
out of the money put = 0

Ohai has a good explanation.

canadiananalyst

Er... probably the easiest way to think about this is:

Call options are long the underlier. Deep in-the-money call options are like holding stock. So, deep ITM call options have delta = 1. Deep out-of-the-money call options probably won't pay off. So, the option price doesn't change much with the underlier price. Therefore, deep OTM call options have delta = 0. At-the-money is in between the previous two scenarios, so just say delta of ATM call options = 0.5.

For puts, it's the same but with negative signs for delta.

Anyway, try not to memorize this. If you understand the options, this should be intuitive.