Derivative Markets
Explain delta and gamma
What you will learn
Interpret a local hedge and why it must change as spot moves.
Small option price change ≈ delta × spot move
Delta approximates the option price change per unit move in the underlying. Gamma measures how delta changes as spot moves. Use the current delta for a small movement, then reassess it when spot or expiry changes. Check contract size and distinguish per-unit from portfolio risk. A fictional call with delta 0.55 gains about ₹5.50 per share for an immediate ₹10 spot increase, ignoring other effects.
A fictional call with delta 0.55 gains about ₹5.50 per share for an immediate ₹10 spot increase, ignoring other effects.
Delta approximates the option price change per unit move in the underlying. Gamma measures how delta changes as spot moves. Use the current delta for a small movement, then reassess it when spot or expiry changes. Check contract size and distinguish per-unit from portfolio risk. A fictional call with delta 0.55 gains about ₹5.50 per share for an immediate ₹10 spot increase, ignoring other effects.
Which measure describes the change in delta as spot moves?