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What Is Delta in Options Trading and Its Value

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Written by Timothy Sykes
Updated 4/20/2023 8 min read

Delta is a risk measure used by options traders. It’s one of four major measures called the option Greeks, which also include gamma, theta, and vega. Traders examine an option’s delta before making trading decisions to manage risk. They also use it to adjust their options trading strategies.

I think risk is the biggest thing a trader should pay attention to. Though I’m usually talking about the simpler risk of stock trading, that doesn’t mean I don’t understand how to use more complicated measures like delta …

I believe in keeping trading simple — but that doesn’t mean I believe in ignorance. You should know about all parts of trading before you narrow down your strategy to what you’re good at.

What is delta in options trading, and how can you use it to your advantage? Read on to learn more!

What Is Delta in Options Trading?

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Delta measures how much an option’s value changes when the underlying asset’s price changes. It specifically measures how much the option’s price will change with a $1 change in the market price.

Here’s an example:

Say, you have Company X stock worth $45 per share and a call option worth $3. Assume the delta is 0.4. This means for every $1 increase in the asset price, your call option’s value rises by 40 cents. If the underlying security gains $2 and becomes worth $47, your call option will be worth $3.80.

Not so hard, right? Good, there’s a bit more…

Deltas can be positive or negative. Here’s how they differ:

  • Positive: You can find positive deltas on call options, ranging from 0 to +1. This is because an increased stock price will increase the option’s value, reflected in the delta value.
  • Negative: You can find negative deltas on put options, ranging from -1 to 0. An increased stock price will decrease the option’s value. The stock price is reflected in the delta — increases take it closer to 0.

Brokers use computer algorithms to calculate delta in real time for their clients. These algorithms are based on a concept called the Black-Scholes model.

As a trader, you’ll likely be looking at an option’s delta to assess your strategy. They are also other option Greeks you should know:

  • Vega: Measures the impact of volatility changes
  • Theta: Measures time decay
  • Gamma: Measures change in delta

These are mostly used in advanced options strategies. If you’re just starting out, learn how to enable options trading on Robinhood in this post.

Or you can check out my full guide to trading options on Robinhood here.

How Is Delta Used in Options Trading?

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Delta is mainly used to help options traders tie a contract’s value to its underlying asset. This is seen most clearly when in-the-money (ITM) calls get close to expiration.

If a call option is definitely going to expire in-the-money, then any gains the underlying asset makes should be equally reflected in the price of the option, right? That’s why ITM calls get closer to 1 as their expiration date approaches.

Following this logic, here’s how other call deltas map out:

  • At-the-money (strike price equaling the stock price) call options have a delta of 0.5. They can either expire in-the-money or out-of-the-money, and the delta splits the difference.
  • Out-of-the-money call options get closer to 0 as expiration approaches. They’re most likely going to expire worthless, so any gains in the underlying asset won’t be reflected in the option. That’s because it likely won’t be executable.

You can also connect a put option’s price to its delta. Here’s a detailed breakdown:

  • At-the-money put options have a delta of -0.5.
  • In-the-money put options get closer to -1 as expiration approaches.
  • Out-of-the-money put options get closer to 0 as expiration approaches.

Key Examples of Delta Values

What do delta values look like? Here’s an example of a call option that’s out, at, and in the money, assuming the asset’s current market price is $100.

We’ll interpret these delta values in the next section.

How to Interpret Delta Values

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From the table in the previous section, we get these interpretations:

  • Option A has a delta of 0.25. Every time the current price increases by $1, the option’s value increases by $0.25.
  • Option B has a delta of 0.5. Every time the stock price increases by $1, the option’s value increases by $0.50.
  • Option C has a delta of 0.75. Every time the stock price increases by $1, the option’s value increases by $0.75.

These interpretations assume no other factors change, but the delta value is fluid and will change with its underlying security. The closer expiration gets in this example, the closer the delta will get to a final confirmation of 1 or 0.

Deltas close to 1 or -1 will have options whose value gain or loss roughly matches that of their underlying assets. At 0, the option doesn’t change its value even when the underlying asset moves.

Check out this guide on how to learn options trading if you’re missing the fundamentals.

Key Factors to Consider

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What do you need to think about when buying an option? Here are two important factors:

Stock Sensitivity

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Many factors influence stock prices. In the world of options, they measure this in “sensitivity” — how an asset changes in response to other factors.

One of the big measures of stock sensitivity is implied volatility — a stock’s volatility through the life of an option.

Many traders are scared of volatility. Personally, I love it.

You can check out my “Volatility Survival Guide” here.

Probability of In-the-Money Expiration

The more likely an option is to expire in the money, the more valuable it is. Looking at an option’s delta can give you a quick read on its value.

Delta vs Delta Spread

A delta spread strategy involves trading options contracts that cancel each other out with a delta neutral ratio. Delta neutral means their delta is 0.

Traders who use delta spreads expect a small profit when stock prices are static. But there’s still potential for big gains or losses if the stock price moves significantly.

Calendar spreads are one of the most common delta spreading strategies. This strategy works by buying and selling options with different expiration dates.

In a simple example, a trader sells a call option with a nearer expiration than the call they’ve bought. As the call that they’ve sold loses value closer to its expiration, they can sell the later-term call and net a small profit.

Traders use the delta spreading strategy to offset risk. However, advanced options strategies like this can be risky in themselves. It’s best to learn from a more experienced trader, like my former student Mark Croock.

Mark has taken my penny stock strategies and applied them to options trading — making $3.9 million in career earnings in the process! He teaches them in his Evolved Trader program.

Here’s a sneak peek of Mark’s curriculum:

Sign up for the Evolved Trader program today and start your journey towards becoming a self-sufficient options trader!

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”