Call Option Deltas vs Put Option Deltas

An option's delta represents the directional risk component of an option position, or its exposure to changes in the underlying stock price.

Delta is the option Greek that measures an option's directional exposure, as delta is used to estimate an option's expected price change with $1 changes in the price of the stock.

To illustrate what this means, let's look at a very basic example. In the following table, pay attention to how each option's delta predicts the option's price in each scenario:

The table above demonstrates the application of delta to assess an option's expected price change:

➜  To estimate an option's price after a $1 increase in the stock price, add the option delta to the option price.

➜  To estimate an option's price after a $1 decrease in the stock price, subtract the option delta from the option price.

You've learned the basics of what an option's delta represents! Now, it's time to learn about the differences between call and put deltas. As you may have noticed in the table from the above, the call deltas are positive, and the put deltas are negative. More specifically:

➜  Call deltas are positive, ranging from 0 to +1

➜  Put deltas are negative, ranging from -1 to 0

In general, this means:

➜  When the stock price rises, call prices are expected to increase and put prices are expected to fall.

➜  When the stock price drops, call prices are expected to fall and put prices are expected to increase.

As a result, traders who buy call options or sell put options benefit from stock price increases. On the other hand, traders who sell call options or buy put options benefit from stock price decreases.