Option Greeks: DELTA

Delta is a measure of the change in the option's price resulting from a change in the underlying stock price.

Delta is an estimate of how much the theoretical value of an option will change when the price of the underlying stock changes by $1, assuming all other variables are unchanged.

Delta is the only Option Greek that has a different value for Calls and Puts:

• Positive number for Calls (0 to 1)
• Negative number for Puts (-1 to 0)

Positive Delta means that the option's value will increase when the underlying stock price rise, and will decrease when the stock price drop

Negative Delta means that the option's value will increase when the underlying stock price drop, and will decrease when the stock price rise


Delta and the position in the market:

• Long Calls have positive Delta; Short Calls have negative Delta
• Long Puts have negative Delta; Short Puts have positive Delta

When you Long a Calls say at $1.00, with Delta say at 0.10, your option will be $1.10 when the underlying stock rise by $1 (assuming all other variables are unchanged).

When you Short a Calls say at $1.00, with Delta say at 0.10, your option will be $0.90 when the underlying stock rise by $1 (assuming all other variables are unchanged).

It is not so straight forward when you have a Spread, where you have a Short options and a Long options.  Take for example, the N225 Jul10 15500/15750 Call Bear Spread in the diagram below.
Call Bear Spread

N225 Jul10 15500 Call   0.1691
N225 Jul10 15750 Call   0.1215

While both of the Call options (15500 and 15750) are having positive Delta, The Call Bear Spread is having a negative Delta.  This is because in Call Bear Spread, you Short 15500 Call and Long 15750 Call.  The Short 15500 Call will have negative Delta and the Long 15750 Call will have positive Delta.

-0.1691 + 0.1215  = -0.0476

Thus, the Call Bear Spread is in fact having a negative Delta of 0.0476, as indicated in the Quote Panel above.  The Call Bear Spread position will gain 0.0476 value if the underlying stock price (N225) drop by 1 point (assuming all other variables are unchanged).