Delta (option).
In plain English
Delta measures how much an option's price is expected to move when the underlying stock moves one dollar, and it ranges from 0 to 1 for calls and from 0 to negative 1 for puts. A call with a delta of 0.60 should gain about 60 cents if the stock gains a dollar. Delta is also a rough shorthand for the odds the option finishes in the money, and it tells a trader how many shares the option currently behaves like. Delta is not fixed: it shifts as the stock price, the time left, and volatility change. That rate of change is called gamma.
01Why it matters
Delta converts an option into share-equivalent terms, so a position's real exposure to the stock can be sized rather than guessed.
02The math, step by step
Hold five call contracts with a delta of 0.40. Each contract covers 100 shares, so the position behaves like 5 times 100 times 0.40, or 200 shares. If the stock rises 2, the position gains roughly 200 times 2, or 400, before other factors.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
It is not a probability, even though it gets used as one. Delta is a price sensitivity that happens to sit close to the model-implied odds of finishing in the money. The two drift apart, especially for options far from the strike or close to expiration.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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