What really is Delta?
This is what determines the amount of change to the option price with 1 point movement of the underlying.
When is Delta Positive and Negative?
Every option, both Calls and Puts, is assigned a delta figure. It ranges from -1 to +1.
For bullish positions, delta will range from 0 for deep Out of The Money (OTM) options to +1 for deep In The Money (ITM) options, while those At The Money options (ATM) will have a 0.5 delta.
Conversely, bearish positions, will yield -1 for deep ITM options, while ATM options will give assigned a -0.5 delta and those OTM options will have 0 delta.gains $0.04; pretty insignificant. But, it makes sense because it is so far OTM.
To illustrate this concept, let's assume IWM is now trading at $74.
A Bullish position, such as a LONG deep ITM Sep61Call, will have +1 (or very very near this integer)
Another bullish position, such as a SHORT deep ITM Sep90Put, shows a +0.925 (pretty close to +1 as well)
From the above, you will appreciate that whether the delta is positive or negative, has nothing to do with whether the option is SHORT or LONG. This is a common misunderstood fact, that can cost many bullish traders to lose money even when market rallies. It may sound impossible, but it can happen.
Hence, in a gist, whether the delta of your position is positive or negative, is dependent on whether it is Bullish (positive delta) or Bearish (negative) position.
How Does Delta Affect Option Price?
Long IWM Sep61Call (bullish position), now has +1 delta and is priced at $13.15. When IWM moves up by $1, this Call option will correspondingly move up to $14.15, exactly increasing by $1 as well. If IWM drops by $1, so will this option fall by exactly $1. The reason, it has a Delta of +1. It is hence, a 1 to 1 option to stock price movement relationship. Therefore, this call option behaves like IWM shares.
Long IWM Sep74Call, which is about ATM strike, now has a delta of 0.53 and is priced at $1.67. When IWM moves up by $1, this long call option will only increase by $0.53 and correspondingly, falls by also $0.53 if IWM drops by $1.
Short IWM Sep66Put (a OTM bullish position), trades for $0.08 and has a delta of 0.04. Note that, even while this is a SHORT position, it still has positive delta. This means, IWM increases by $1, this position will increase by only $0.04. But it makes sense, because this option is so far OTM.
The table below summarizes the polarity of Delta for Bullish and Bearish positions.
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