Delta definition

A derivative’s delta is defined as its price movement in relation to the change in price of its underlying asset. It can also sometimes be referred to as a hedge ratio, and is most often used when dealing in options.

Delta is given as the amount an option’s price will move when its underlying asset changes one point in price. A delta of 0.5, for instance, will see the price of an option move 0.5 for every one point move of its asset. A delta of one means that the option will mirror the price changes of its underlying asset. A put option’s delta has a value in the range 0 to -1 and a call option’s in the range of 0 to 1.

Depending on whether the derivative is a call or a put, delta can be either shown as a negative or a positive figure. This is because a put option, for example, will have a price that moves inversely to the price of its underlying asset.

Delta is one of the ‘greeks’: a set of variables of risk involved in options trading.