Delta

How much the option price changes when the stock rises by $1. A call with delta 0.5 gains about $0.50 per share, i.e. $50 per contract. Roughly also a measure of how likely the option is to finish in the money.

Delta by strike: a quick overview

For a fictional stock at $100 with 35 days to expiry and IV of 30 %, call deltas look roughly like this:

Put deltas are negative: a put with delta −0.40 gains about $0.40 per share when the stock falls by $1.

What delta means for your trade

A call with delta 0.53 and the stock rising $2 gains roughly $1.06 per share, or $106 per contract. A call with delta 0.17 gains only about $0.34 per share for the same move, and it loses value to theta faster in relative terms. Cheap out-of-the-money options look attractive, but they need a large move in a short time.

Delta is not fixed. It rises as the stock moves towards and past the strike and changes faster close to expiry.

Common mistakes

• Buying very low deltas because they are cheap. Low delta means a low chance of finishing in the money.
• Forgetting the contract size. One contract usually covers 100 shares, so a delta of 0.5 means about $50 per $1 move.
• Treating delta as an exact probability. It is only a rough guide to the chance of finishing in the money.

Frequently asked questions

What delta should I use for buying calls?

There is no single answer. Higher deltas behave more like the stock and lose less to time decay, lower deltas need bigger moves. The screener's swing setups use strikes at or slightly in the money, which is a delta of about 0.5 to 0.6.

Is delta the probability of profit?

Not exactly. Delta roughly approximates the chance of finishing in the money. Profit also depends on the premium you paid, so the probability of profit is lower.

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Related terms

All terms in the options glossary → · Methodology →