Options Greeks

Delta

The Delta indicator reflects the sensitivity of an option’s premium to changes in the underlying asset price. Delta is calculated as the change in the option price per one percentage point change in the underlying asset price, assuming all other factors remain constant.

When an investor buys or sells an option, there is a market maker who takes on the risk. The market maker can be either long or short.

In this case, Delta helps us monitor liquidity. The market maker’s book should always be delta neutral. Being delta neutral means that throughout the day, with changes in spot prices and other Greeks, the market maker is buying or selling the underlying asset depending on whether they are long or short delta.

The premium of the option can be divided into two components:

  1. Intrinsic Value: This is calculated by subtracting the market price from the strike price. It represents the profit that would be realized if the option holder were to exercise it at the current market value.
  2. Time Value: It is calculated by subtracting the intrinsic value of the option from the option premium.