For today’s segment of Best Practices, Tom and Tony discuss effective ways to understand delta. As one of the most prominent, Delta is a metric often used and reviewed when placing and managing trades.
can be interpreted in 4 ways:
- Directional Bias
- Share equivalency
- Options needed to delta-hedge a stock position
- Probabilities of market moves
A positive delta shows a bullish position, and a negative delta shows a bearish position.Share Equivalency:
The delta value corresponds to the number of shares the position represents (helps gauge risk).Delta Hedging:
We can use delta to determine the number of options needed to delta hedge a stock position.Market Moves:
We can use delta to approximate probabilities.