Delta
Categories: Derivatives, Trading, Investing
If you asked Eric Clapton, Joe Bonamassa, Keith Richards, or any other rock star whose music is based on the blues, he'll tell you the Delta is the place in Mississippi where Robert Johnson made a deal with the Devil at the crossroads to sell his soul in order to become King of the Blues.
If you ask an options trader, she'll explain that delta is the premium result of the ratio between the option derivative vs. the underlying asset. Call and put options will usually have mirror image delta ratios relative to a strike price, so if the delta for an option series is 0.41, the price of the option will rise or fall +/- 0.41 for each dollar above or below the strike price. Other factors that can affect delta are open interest (liquidity), time value, and historical volatility.
Think: delta = change. As in: your mother telling you to delta your sheets.
Related or Semi-related Video
Finance: What is a Derivative?23 Views
finance a la shmoop what is a derivative? well it's derived it's a something taken
from something else like a derivative of hot weather is thirst a derivative of [Girl takes sip of glass of water on a beach]
hunger is well you know crankiness that's diva thing you get there...
derivative of a 1/32 quarterback rating in the NFL is like serious wealth yeah
yeah discount double shmoop yeah look for it be on there with aaron
and a derivative of a stock or bond or other security is a something which
derives its value based on the performance of that underlying security
there are basically two flavors of derivative put options ie the right to [Ice cream flavors appear]
sell a security at a given price over a given time period and a call option, ie
right to buy a security at a given price over a given time period
well the price of that option is derived from the price of the security and a few
other factors like strike prices and duration and all that stuff
colonel electric the downgraded new version of General Electric is trading [Colonel Electric appears in a suit]
for 25 bucks a share a derivative of its share price is sold in the form of a
call option with a $30 strike price expiring about 90 days from now on the
third Friday of the end of that month well investors pay a price albeit
probably a small one for the right to then pay 30 bucks a share for colonel [Call option appears for colonel electric]
electric at any time in the next 90 ish days until that option expires making the bet
that the stock will go well above 30 bucks a share in that time period that
call option is thus a derivative of the colonel electric primary stock price got
it if you really want to get personal well here's the ultimate form of
derivative [Baby laying down]