Let's take a closer look at one of the most widely used Greeks.

Delta. Delta indicates the sensitivity of the option premium to changes in the underlying asset price.

In other words, if the spot price goes up by $1, how much does the option premium change? That's what Delta tells us.

Deltas are usually expressed as a value between zero and one or between 0% and 100%, which is essentially the same thing.

So what does a delta of 50% mean? It means if the price of the underlying increases by $1, the option premium will rise by about 50 cents.

That's why Delta is sometimes called the participation ratio or likeness factor.

It shows how much the option premium behaves like the underlying underlying. Now delta also carries a sign positive or negative.

If you are just given the absolute number, you need to work out whether it's a plus or minus.

By asking a simple question, do the options value and the underlying price move in the same direction or in opposite direction? For a long call, the options value increases when the underlying increases.

That's the same direction.

So long calls have a positive delta, often referred to as long delta.

The same goes for short puts.

When the underlying rises, the premium of the put decreases as the seller of the option that benefits the short position.

So the position has a positive delta as well.

On the other hand, long puts and short calls move in the opposite direction to the underlying.

That means they carry a negative delta or short delta.

And finally, Delta also tells us the hedge ratio.

In other words, how many units of the underlying asset need to be bought or sold to neutralize the directional risk of the.