![]() For ITM call option near expiry, its delta will approach 1 or 100% Similarly, as an in-the-money put option nears expiration, its delta will approach -1 or -100%. Similarly, when we say a put option has a delta of say -0.8, this means that if there is an increase of $1 in the underlying price, the option price will decrease by $0.80.įor OTM options, the absolute value of delta will be lower compared to ITM options. For instance, if a call option has a delta of 0.8, this means that if the underlying price increases by $1, the option price will increase by $0.80. Option delta represents the sensitivity of option price to small movements in the price of underlying asset. To understand the impact of change in any factor it is (as always) important to keep other factors constant so we can understand the impact of change of that particular factor. Here we explain Option Greeks in simple terms to measure the sensitivity of option price to changes in these variables. The Option Greeks are essentials for an option trader as they help option trader plan his trades and understand & estimate the extent of risk while trading options. Option price is a function of many variables such as time to maturity, underlying volatility, spot price of underlying asset, strike price and interest rate, option trader needs to know how the changes in these variables affect the option price or option premium. The Greek is used in the name because these are denoted by Greek letters. ![]() Option Greeks are option sensitivity measures.
0 Comments
Leave a Reply. |