Question

A: Let's say you have a position in derivatives and stock with a Delta of +300 shares. How much should you make or lose in theory if the stock rises by $0.50?

B: Let's say you have a position in derivatives and stock with a Delta of +140 shares. How much should you make or lose in theory if the stock falls by $1.00?

Answer 1

Sol :

Delta is the amount an option price is expected to move based on a $1 change in the underlying stock. Delta values can be positive or negative depending on the type of option. For call option it ranges from 0 to 1 and for put option it ranges from -1 to 0. Delta behaviour can be in the money, at the money or out of the money. A put option with a delta of -1 is considered at-the-money meaning the strike price of the option is equal to the underlying stock's price. Conversely, a call option with a 1 delta is has a strike that's equal to the stock's price.

A) If our stock price rises by $0.50 then the amount gained will be 300 x .50 x 1 = $150

B) If our stock price fall by $1.00 then the value loss will be 140 x 1 x 1 = $140