What is delta?
In finance, delta refers to the ratio that compares the change in the price of an asset, usually a derivative, to the corresponding change in the price of its underlying asset. It's a key concept in options trading, representing how much an option's price is expected to move per USD 1 change in the price of the underlying security.
Why is it important to consider delta when trading?
Delta is vital for traders, particularly in options trading, as it helps assess the risk and potential reward of an option position. A higher delta means the option price is more sensitive to the underlying asset's price changes, indicating higher potential profits but also greater risk. Understanding delta enables traders to create hedging strategies and manage their portfolios more effectively, aligning their positions with their market expectations and risk tolerance.