what is delta 
delta is a risk metric that estimates the change in the price of a derivative such as an options contract given a 1 change in its underlying security it is represented by the symbol the delta also tells options traders the hedging ratio to become delta neutral a third interpretation of an option s delta is the probability that it will finish in the money delta values can be positive or negative depending on the type of option investopedia mira norianunderstanding deltadelta is an important variable related to the directional risk of an option and is produced by pricing models used by options traders as noted above it is represented by the symbol professional option sellers determine how to price their options based on sophisticated models that often resemble the black scholes model 1delta is a key variable within these models to help option buyers and sellers alike because it can help investors and traders determine how option prices are likely to change as the underlying security varies in price the calculation of the delta is done in real time by computer algorithms that continuously publish delta values to broker clientele the delta value of an option is often used by traders and investors to inform their choices for buying or selling options delta values can be either positive or negative according to the type of option the behavior of call and put option delta is highly predictable and is very useful to portfolio managers traders hedge fund managers and individual investors this is explored a little further down an option with a delta of 0 50 is at the money delta vs delta spreaddelta spreading is an options trading strategy in which the trader initially establishes a delta neutral position by simultaneously buying and selling options in proportion to the neutral ratio that is the positive and negative deltas offset each other so that the overall delta of the assets in question totals zero using a delta spread a trader usually expects to make a small profit if the underlying security does not change widely in price however larger gains or losses are possible if the stock moves significantly in either direction the most common tool for implementing a delta spread strategy is an option trade known as a calendar spread the calendar spread involves constructing a delta neutral position using options with different expiration dates for instance a trader sells near month call options and buys call options at the same time with a later expiration in proportion to their neutral ratio since the position is delta neutral the trader should not experience gains or losses from small price moves in the underlying security the trader expects the price to remain unchanged and as the near month calls lose time value and expire the trader can sell the call options with longer expiration dates and net a profit the deeper in the money the call option the closer the delta will be to 1 and the more the option will behave like the underlying asset call and put option deltascall option delta behavior depends on whether the option is the delta for a call option always ranges from 0 to 1 because as the underlying asset increases in price call options increase in price put option deltas always range from 1 to 0 because as the underlying security increases the value of put options decreases 2put option delta behaviors also depend on whether the option is the deeper in the money the put option the closer the delta will be to 1 if a put option has a delta of 0 33 and the price of the underlying asset increases by 1 the price of the put option will decrease by 33 cents 2 technically the value of the option s delta is the first derivative of the value of the option with respect to the underlying security s price delta is often used in hedging strategies and is also referred to as a hedge ratio 3an option s gamma is its change in delta given a 1 change in the underlying security examples of deltalet s assume there is a publicly traded company called bigcorp shares of its stock are bought and sold on a stock exchange and there are put options and call options traded for those shares the delta for the call option on bigcorp shares is 0 35 that means that a 1 change in the price of bigcorp stock generates a 35 cent increase in the price of bigcorp call options thus if bigcorp s shares trade at 20 and the call option trades at 2 a change in the price of bigcorp s shares to 21 means the call option will increase to a price of 2 35 put options work in the opposite way that is if the put option on bigcorp shares has a delta of 0 65 then a 1 increase in bigcorp s share price generates a 65 cent decrease in the price of bigcorp s put options so if bigcorp s shares trade at 20 and the put option trades at 2 then bigcorp s shares increase to 21 and the put option will decrease to a price of 1 35 