What does delta measure in the context of options?

Delta is a key concept in options trading that specifically measures the sensitivity of an option's price to changes in the price of the underlying asset. It indicates how much the price of an option is expected to change when the price of the underlying asset changes by $1. A delta of 0.5, for instance, suggests that if the underlying asset's price increases by $1, the option's price will likely increase by 50 cents.

This measurement is critical for traders and investors as it allows them to understand and assess the potential risk and reward associated with changes in the market. Delta values range from 0 to 1 for call options and from -1 to 0 for put options, reflecting their different price dynamics in relation to the underlying asset.

In contrast, while other options discuss various aspects of options pricing and risk management, they do not specifically define what delta measures. The sensitivity to a 1% change in the underlying asset price, time decay, and the probability of an option expiring in-the-money are important factors in options trading, but they pertain to different concepts and metrics in the options pricing framework. Understanding delta is essential as it provides a foundational understanding of how options react to underlying asset movements.