What Does an Option’s Delta Represent, and How Is It Used for Hedging?
Delta measures the expected change in an option's price for a one-unit change in the underlying asset's price. It is expressed as a value between 0 and 1 for calls, and 0 and -1 for puts.
Delta is primarily used for hedging the price risk of an options position. A portfolio with a net Delta of zero is considered "Delta-neutral," meaning its value should theoretically not change with small movements in the underlying asset's price.
Hedging involves buying or selling the underlying asset to offset the portfolio's net Delta.
Glossar
Net Delta
Exposure ⎊ The Net Delta, within cryptocurrency derivatives and options trading, quantifies the aggregate directional sensitivity of a portfolio to changes in the underlying asset's price.
Underlying Asset
Futures Pricing incorporates the cost of carry, which in crypto markets includes funding rates derived from perpetual swap markets and the time value associated with holding the spot asset.
Time to Expiration
Decay ⎊ Time to Expiration, within cryptocurrency options and financial derivatives, represents the remaining lifespan of a contract before its termination and potential exercise or assignment.
Price Risk
Exposure ⎊ Price risk within cryptocurrency derivatives manifests as the potential for loss stemming from adverse movements in underlying asset valuations, impacting positions held in futures, options, and perpetual swaps.