Why Is Delta Greek Important ?

Delta is important because it gives us a way to realize the movement in our options. Delta also doubles as a primitive probability analysis. We say primitive because this number is a good approximation but it is not perfect. Turning Delta into a percentage gives you the probability of that option ending in-the-money. An at-the-money option has a Delta of 0.50, so it has a 50% chance of finishing at-the-money at expiration.

This becomes increasingly useful if you are a seller of options and want to keep options out-of-the-money, or if you purchase out-of-the-money options looking for them to go in-the-money. You will also use Delta as our hedge ratio, which we will touch on shortly. Using Delta as a probability proxy is only an estimate, and in practice, it is not precise.

The Deltas of calls and puts both increases as the stock price increases and decrease as the stock price decreases.

TOP is currently trading at $50.00, and the 50 call has a Delta of 0.50. The stock increases to $55.00, taking the call from at-the-money to in-the-money. The Delta is now 0.55, rising as the stock price increases.

The confusing part is when we try to make sense of a put’s Delta, increasing as a stock’s price increases. TOP is currently trading at $50.00, and the 50 put has a Delta of -0.50. The stock increases to $55.00, taking the put from at-the-money to out-of-the-money. The Delta of the put is now -0.45, increasing as the stock price increases. This works because put Deltas are negative.