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Options for the Beginner and Beyond: Unlock the Opportunities and Minimize the Risks by W. Edward Olmstead - Professor of Applied Mathematics McCormick School of Engineering and Applied Sciences Northwestern University

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Delta

The most basic and useful of the Greeks is the delta. Even with a simple working knowledge of the delta, you are immediately going to be a better options trader.

Delta: The amount that the price of an option changes as compared to a $1 increase in the stock price. This quantity is typically expressed as either a decimal or a percentage.

Computing the Delta of a Call Option

Let’s illustrate with some examples:

  • Example 1. XYZ is at $30 per share. The Mar 30 call, which expires in three weeks, is priced at $2 per share. Suppose the price of XYZ increases by $2 up to $32 per share. Typically, this will cause the price of the Mar 30 call to increase by $1 up to $3 per share.

    Let’s compute the delta for this Mar 30 call: Its price increased by ...

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