Delta’s Relationship With Spot And Strike Price
Let’s learn more about the effect of different factors on Delta.
The table below shows how Delta changes with respect to change in SPOT PRICE, given the other factors are constant. Let’s find out the same for a 16500 strike Call and Put option, assuming the volatility to be 17% and days to expiry 17 days.
Note: All the premium and Greek figures in this table (and the upcoming ones), have been derived using Black Scholes options pricing calculator.
We can clearly observe that as spot price increases from 16100 to 16900, call premium increases (from ₹61 to ₹489) and put premium decreases(from ₹420 to ₹48). Similarly, call Delta increases and put Delta decreases. Thus concluding that call Delta has a positive relationship with Spot price whereas Put Delta has a negative relationship.
Now let’s find out how Delta behaves with respect to change in STRIKE PRICE, assuming the Spot price to be 16500, days to expiry 17 and volatility at 17%.
Observations: As Strike price increases,
- Call premium decreases from 491 to 52
- Put premium increases from 70 to 435
- Call Delta decreases.
- Put Delta increases.
In this graph, we can see that the X axis shows the moneyness of the option. The blue Delta line is flattish at the OTM near zero. When the spot moves from OTM to ATM the Delta also starts to pick up and remains in the range of 0 to 0.5. When the spot moves from ATM to ITM, the Delta moves beyond the 0.5 mark and starts to flatten out as it hits the value of 1. A similar characteristic is shown by the red line Put Delta.
This means that when you are buying an ITM option it is as good as buying the underlying itself.
To compute the exact Delta of an option, one can always use the Black Scholes option pricing calculator.