### Delta

Delta represents the sensitivity of an option’s price to changes in the price of the underlying security. In other words, how much the option’s price will change as the security’s price changes. For purchased options, as opposed to shorted options, Delta is between 0 and 1.00 for calls and 0 and -1.00 for puts. Delta can only be calculated for a given moment in time and must be recalculated as the underlying security’s price, implied volatility and time to expiry change. To get a complete picture, option traders often study Delta in conjunction with Gamma and Theta, discussed later in this article.

Delta is sometimes used to estimate the percentage probability that an option will close in-the-money at expiry. A deep-in-the-money option has a much larger Delta, that is, a much higher probability of expiring in-the-money. The Delta of a far-out-of-the-money option will likely be small and may give you some idea of how likely it is to have value at expiry. An option with less than a 0.10 Delta can be seen as estimating less than 10% probability of being in-the-money at expiry. This option needs a strong move from the underlying stock to have value at expiry.

Time remaining until expiry will also have an effect on Delta. An in-the-money call with longer time until expiry will have a lower Delta than the same strike call with less time until expiry. It's the opposite for out-of-the-money calls; the call with a longer amount of time until expiry will have a higher Delta than the option with less time.

As expiry approaches, in-the-money call Deltas increase toward 1.00, at-the-money call Deltas remain around .50 and out-of-the-money call Deltas fall toward 0, all else being equal.

Low implied volatility stocks will tend to have higher Deltas for the in-the-money options and lower Deltas for out-of-the-money options.

It’s important to remember that Delta is constantly changing, even during the trading day. Typically, Delta won’t accurately predict the exact change in an option’s premium. However, it can be used as a general indicator and to compare one option choice with another.