Options & Derivatives

Delta

The rate of change of an option's value with respect to the underlying price.

Three readings at once, and interviewers expect all three: the sensitivity (value change per unit move), the hedge ratio (shares per option to be neutral), and an approximation of the risk-neutral probability of finishing in the money.

Calls run 0 to 1, puts -1 to 0, at-the-money around 0.5.

Nuance on the third reading. Delta is formally N(d1), while the in-the-money probability is N(d2). Flagging that distinction while still using the approximation is a strong answer.

Delta is not constant - its rate of change is gamma.

Full guide

Delta: Sensitivity, Hedge Ratio and Probability

Delta means three things at once. Understanding all three is what interviewers are checking.

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