Option greeks are a way to measure an option's sensitivity to the underlying stock, interest rates, market volatility and the passage of time. In this series we will be looking at each of the common greeks used by investors. This article will begin our discussion of the first of these greeks, delta.
Delta is a measure of the rate of change in an option's price with a $1 move in the underlying stock or index. If a particular option contract has a delta of .5 and the underlying stock moves by $1.00 then the option's price should increase by $.50 per share or $50 per contract. Delta will grow with in the money options and it will fall with out of the money options. Understanding how delta works can be helpful when trying to forecast the short term price movement for a particular stock.
Delta can also be a little tricky from a practical perspective. First, using it to forecast price changes only works if everything else in the market stays constant. Second, delta will change as the market trends in favor or against your option. That means that delta is at best only an estimate of what price changes should be expected if the underlying stock or index moves $1 very quickly. In the video I will show what delta is on the at the money options on an ETF in the market today.
oscar gomez
- hedfing forex spot with OTC options!
|2009-03-13 16:12:04
HI, Thank you for all the info, thank you for your time, it 's great!
latetly i've been trying to figure out how to hedge an spot position with some options from saxo bank!
i tought that if i buy for example, 10.000 audusd at 0.64 and if i buy a 10.000 put options with a strike price of .64, ( buy them at the money at the same time i open the spot position).
all this because i think it's gonna go up!
but i found out that i'm not really hedge!
i don't know if this is making sense to you any ways, thanks for looking at it anyways!!
thank you so much!
John Jagerson
- Hedged
|2009-03-14 08:05:10
Why do you say you are not hedged?
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