Definition of delta
- the Mississippi Delta
anthracite, boulder, cwm, erratic, igneous, intrusive, mesa, sedimentary, silt, swale
1952
Delta is the ratio comparing the change in price of an underlying asset to the change in price of a derivative. It is one of the four main statistics, known as "Greeks," used to analyze derivatives.
Let's assume you own a call option on Company XYZ stock. If the price of Company XYZ stock increased by $1.00 and the call option increased by $0.80 in the same time period, then the delta is 0.80 ($0.80/$1.00).
Put options work inversely. Since put options lose value as the underlying security increases, delta is a negative number. If a stock increases $1.00, and the put price decreases $0.50, then the put option has a delta of -0.50. Deltas aren't constant and change according to fluctuations in the underlying stock's price, time left on the derivative until expiration, and volatility in the underlying stock.
Delta allows derivatives traders to understand what sort of risk/return they can expect from an investment. For instance, if they believe a stock will increase $2.00 per share in the near future, they can buy a call option on the stock. By using the delta calculation, the investor can calculate their potential gain from the stock's move -- important information to know before taking a risk.
: the fourth letter of the Greek alphabet
: a piece of land shaped like a triangle that is formed when a river splits into smaller rivers before it flows into an ocean
: an area of low land along the Mississippi River that is mainly in the state of Mississippi
Spanish Central: Translation of delta Nglish: Translation of delta for Spanish speakers Britannica English: Translation of delta for Arabic speakers Britannica.com: Encyclopedia article about delta
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