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Delta

• Is the measurement of the price sensitivity of an option relative to the underlying instrument. Typically, the delta range is expressed between -1.0 to +1.0.

• Also called the hedge ratio, the ratio of the change in price of a call option to the change in price of the underlying stock.

 
 Embedded terms in definition
 Call option
Call
Change
Hedge
Option
Range
Stock
Underlying
 
 Referenced Terms
 Composite delta: Is the weighted average of the Deltas associated with each underlying price scan point. It is used by SPAN® and other systems to simplify portfolio evaluations. SPAN® uses its Composite Delta as the best quick estimate of what the contract's delta will be after the lookahead time has passed. It is included with the risk arrays transmitted in the SPAN® Risk Parameter File.

 Delta hedge: Is a risk management operation which uses derivative instruments against actual underlying securities or instruments. The composite option characteristic of the combined trade indicates the market exposure experienced by the trading or investing entity at that moment in time. When the market price or interest rate exposure is essentially minimized to zero, then the hedge is considered Delta Neutral.A dynamic hedging strategy using options with continuous adjustment of the number of options used, as a function of the Delta of the option.

 Delta hedge: Is a risk management operation which uses derivative instruments against actual underlying securities or instruments. The composite option characteristic of the combined trade indicates the market exposure experienced by the trading or investing entity at that moment in time. When the market price or interest rate exposure is essentially minimized to zero, then the hedge is considered Delta Neutral.A dynamic hedging strategy using options with continuous adjustment of the number of options used, as a function of the Delta of the option.

 Delta hedge of an option: A hedge of an option with a position in the underlying asset where the hedge ratio is based on the option's Delta.

 Delta neutral: Occurs when the market risk exposure, in terms of price or interest rate level, for an underlying position is completely offset with derivatives. This is a point in time concept because options are decaying assets that may have to be rebalanced in order to maintain Delta neutrality.The value of the portfolio is not affected by changes in the value of the asset on which the options are written.

 
 Related Terms
 Composite delta
Delta equivalency
Delta hedge
Delta hedge of an option
Delta neutral
Delta of an option
Hedge ratio delta

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