In the world of options and derivatives, the concept of delta (one of the Greeks) is a very important one because it helps in assessing the option pricing and the direction of the underlying stock. Δ = (O f – O i) / (S f – S i) Relevance and Uses of Delta Formula Step 7: Finally, the formula for delta can be derived by dividing the change in the value of the option (step 3) by the change in the value of its underlying stock (step 6) as shown below. Step 6: Next, calculate the change in the value of the underlying stock by deducting its initial value (step 4) from its final value (step 5).Ĭhange in the Value of the Underlying Stock, Δ S = S f – S i Step 5: Next, Calculate the final value of the underlying stock which is denoted by S f. Step 4: Next, Calculate the initial value of the underlying stock which can be any company stock, commodity index or benchmark index, etc. Step 3: Next, calculate the change in the value of the option by deducting the initial option value (step 1) from the final option value (step 2).Ĭhange in an Option Value, Δ O = O f – O i Step 2: Next, Calculate the final value of the option which is denoted by O f. Step 1: Firstly, Calculate the initial value of the option which is the premium charged for the option.
The formula for delta can be calculated by using the following steps: Therefore, the delta of the put option is -$0.25 where a negative sign indicates a decrease in value with the increase in underlying stock price value which is the characteristic of a put option. If the index was trading at $7,800 a month back while the put option was trading at $200, then calculate the delta of the put option.
Let us take another example of a benchmark index which currently trading at $8,000 while the put option for the index is trading at $150. Therefore, the delta of the call option is $0.30 where a positive sign indicates an increase in value with the increase in underlying stock price value which is the characteristic of a call option. Calculate the delta of the call option based on the given information.ĭelta Δ is calculated using the formula given below Now, currently, the commodity is trading at $600 while the value of the option has surged up to $75. Let us take the example of a commodity X which was trading at $500 in the commodity market one month back and the call option for the commodity was trading at a premium of $45 with a strike price of $480. You can download this Delta Formula Excel Template here – Delta Formula Excel Template Delta Formula – Example #1
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