Delta measures how sensitive an option’s theoretical value is to a one-unit or point change in the price of the underlying stock or index. Delta measures the rate of change for an option.

Delta can also be referred to as the directional risk for an option. Therefore, positive deltas will benefit from a rise in price, and negative deltas will benefit from a decline in price. For example, 100 deltas in SPY would equate to a 100-share long position in SPY, whereas -100 deltas in SPY would equate to a 100-share short position in SPY. The bigger the delta, the faster the position’s P&L will change.

An option’s delta is also interchangeable with the probability of that option being in the money at expiration. For example, a .20 delta would mean roughly a 20% probability of the option being in the money at expiration, while a .95 delta would mean roughly a 95% probability of the option being in the money at expiration.

A large delta will mean a significant change in the value of the option position as the underlying stock or index moves. Options with lower deltas tend to be inexpensive since their entire value is comprised of **time value**, whereas options with higher deltas carry the highest premiums due to the fact that nearly all of their value is **intrinsic value**.

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