Delta is a measure of the sensitivity of an options contract’s price to changes in the price of the underlying asset. It is expressed as a value between 0 and 1 for call options, and between 0 and -1 for put options.
For example, let’s say you own a call option on Company XYZ with a delta of 0.5. If the price of Company XYZ shares increases by $1, the price of your call option will increase by approximately $0.50 (0.5 delta x $1 price change). Conversely, if the price of Company XYZ shares decreases by $1, the price of your call option will decrease by approximately $0.50. The delta of an options contract can change over time, as it is affected by various factors such as the price of the underlying asset, the strike price, and the expiration date. Traders use delta to help manage risk, as it can help them determine the potential profit or loss of an options trade under different market scenarios.