0

How to interpret Greek Delta for Options? First, I google. Pretty much anywhere i search, I stumble upon the same definition "Delta is the amount an option price is expected to move based on a $1 change in the underlying stock." (from here)

Okay, let's proof test this. I'll take two stocks Google and Microsoft and choose the closest In The Money options (apples to apples).

  1. Take a Call option for Microsoft EXP: 07/17/20. Strike 205. Delta is 0.5677

  2. Compare with a Call option for Google EXP: 07/17/20. Strike 1465. Delta is 0.5098

So what??? Based on the definition, a $1 increase in Google or Microsoft stock will result in $50 increase in these options??? Really??? Google stock is like 10 times more expensive than Microsoft. $1 increase for Google stock is insignificant like a mosquito sting.

Anywhhooooo..... how is it even possible, i look up any other stock with the first available In The Money options, and Delta always around 0.5??? For ANY stock a $1 increase results in $50 increase the First available In The Money Call Options? Doesn't make sense.

0

Your conclusion is incorrect. Delta has nothing to do with Google being a more expensive stock than Microsoft or how much more it is likely to move up or down than Microsoft.

Delta is the expected price movement in the option if the stock moves one dollar. So if the delta of a MSFT call is the same as the delta of a GOOG call and each stock moves up ONE DOLLAR then each option will gain the same amount.

| improve this answer | |
  • Thank you. The problem is DELTA is always 0.5 for the call options (with strike close or equal to the market price) for ANY stock (literally ANY). I checked like hundreds of stocks, and .... as long as market price is close to the strike........DELTA will always be 0.5. So what......for ANY stock, with strike close or equal to the market price, a $1 increase will result in $50 increase in it's option? My guess is that the true definition of DELTA is "Delta is the amount an option price is expected to move based on a one basis point (or something) change in the underlying stock." – user99800 Jul 5 at 14:10
  • I mean DELTA is always 0.5 for the options (with strike = market), plus minus..... Take two extreme examples: Stock ABC priced at $1,000, and stock XYZ priced at $10. Their options (with strike = market) will have DELTA of 0.5. So a $1 increase of ABC will result in $50 increase in ABC option. And $1 increase in XYZ will result in $50 XYZ option. Really? It's like a rule of thumb or something – user99800 Jul 5 at 14:16
  • I would understand it was a "one percent change in an underlying price results in X percent in option...." but can we apply $1 increment to $1,000 and $10 stock? – user99800 Jul 5 at 14:18
  • A $1,000 stock is 100 times the price of a $10 stock. If you buy 100 shares of your $1,000 stock and it moves up $1, your profit is $100. If you buy 100 shares of your $10 stock and it moves up $1, your profit is $100. $100 equals $100. Share price differential means nothing. Would you expect the call on the $1,000 stock to make 100 times that of a call on a $10 stock when the respective stock gains are the same. An at-the-money call on each stock will have a delta of .50 so when each stock moves up $1, each call will move up 50 cents for a total gain of $50, 1/2 the stock gain. – Bob Baerker Jul 5 at 14:23

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.