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Finance Dictionary and Glossary of Investment Terms
The ratio of the change in price of a call option to the change in price of the underlying stock. Also called the hedge ratio. Applies to derivative products. Measure of the relationship between an option price and the underlying futures contract or stock price. For a call option, a delta of 0.50 means a half-point rise in premium for every dollar that the stock goes up. As options near expiration, in-the-money call option contracts approach a delta of 1.0, while in the money put options approach a delta of -1. See: hedge ratio, neutral hedge.
The ratio of change in the price of a derivative with the price of the underlying asset.
A measure of how movements in a stock''s price affect the price of an option based on the stock. A delta of .25, for instance, means that when a stock rises by $1, the option price rises by 25 cents. Call options have a positive delta, while puts have a negative delta.