Delta & Risk Level

Delta measures the sensitivity of an option's price to a $1 change in the price of its underlying asset. An option's delta is the probability that it will finish in the money. The higher the delta, the riskier the vault.

Let's assume we have a call option priced at $1.00 with a delta of 0.50. This means that for every change in the price of the underlying asset, the option's price will change by 50% of that amount.

In this scenario, the price of the underlying asset increased from $96 to $97.5, which is a $1.5 move. Consequently, the option's premium will increase by 50% of this $1.5 change, which is $0.75 ($1.5 * 50% = $0.75). Therefore, the new price of the option will be $1.75.

It's important to note that

The absolute value of delta also indicates the approximate probability that the option will finish in the money. For example, a delta of 20 suggests a 20% chance of finishing in the money, while a delta of 50 suggests a 50-50 chance.

Delta is dynamic and changes with movements in the underlying asset. Options with a delta less than 50 are considered out of the money. If the delta is greater than 50, the option is in the money. A delta close to 50 indicates the option is at the money.