Measuring Directional Exposure with Delta: Single Option and Option Spreads

Delta as a measure of directional exposure

The relationship between the underlying stock’s price changes and the option’s price changes is measured by the well known Greek letter delta. In general, delta measures by how much the value (market price) of an option or an option spread position changes when the market price of the underlying asset (e.g. a stock) changes by 1 dollar. You can see a more detailed introduction to delta here: Option Delta.

Besides individual options, delta can be used to measure the directional exposure of whole option spreads or other positions combining multiple options on the same underlying asset.

Delta of call options

For call options delta can reach values from zero (far out of the money options) to one (deep in the money options). At the money options have delta around 0.50. This means that when the underlying stock increases by 1 dollar, the option’s market price rises by 50 cents.

Delta of put options

For put options delta has values between negative one (deep in the money puts) and zero (far out of the money puts). At the money put options have delta around -0.50. When the underlying stock decreases by 1 dollar, the put option’s market price rises by 50 cents (same as with calls, just inverse).

Measuring directional exposure of option spreads

Options’ delta is additive and therefore it is an effective tool for measuring directional exposure also for more complicated option spreads and combinations of multiple options. You simply add all deltas of your long options and subtract all deltas of your short options and the result is the total delta of your position. You can see an example here: Delta Hedging.

Bullish and bearish option spreads and delta

If the total delta is positive, you have bullish exposure to the underlying asset (you make a profit when the price of the underlying asset rises). If it is negative, you are bearish (you profit from decline of the underlying asset’s price). Unlike the delta of a single option, the total delta can be higher than one or lower than minus one for combinations of multiple options.


Related pages


wacc equationexcel log formulahow to calculate 95th percentile in excelwhat is variance in statsdiv yield formulawhat is d1 in black scholesoption volatility calculatorthe formula for finding the sample mean ishow to put power in excel formulacontinuous dividend yield formulamacd calculationhow to calculate excel formulasetf short sp500calculating standard deviation of returnswhat is straddle positioncboe volatility indexwhat to invest in besides stocksrsi indicator pdfnormal dist excelrealized rate of return calculatorstock market volatility definitioninverse vix etfbull call spread strategyfutures rollover datescumulative normal distribution excelcalculate standard deviation excelarithmetic mean calculation formulahow to calculate stdevvix index charthow to calculate coefficient of variation in excelannualized standard deviationhedging with vixvix future pricesdelta of an option formulahedge fund tradersoversold definitionultra short etfsthe black scholes merton modelwhat is skewness in statistics13f filing requirementsskewness formulaoptions expirationsvolatility calculation black scholesvolatility calculation black scholesvix optionsetf s&p 500 shortvix trading hoursput option black scholesvix options trading strategieshedge fund filingscalculate sharpe ratio excelcontinuously compounded returnsvix contangomacd trading strategystock indexingmacd valueswhats arithmeticexcel cumulative formulaoption payoff calculatorwhat is coefficient of skewnessintrinsic value of stock formulabook on options tradinginverse etfs listacceptable skewness and kurtosishistorical volatility formulacboe option chainema in excelmean mode median calculatormoments skewness and kurtosisblack scholes d1 d2calculation of skewnessspot markets versus futures marketsthe greeks in finance