Currency Option Delta

Delta
Delta, or commonly A, is the first derivative of the option-pricing model Delta may be viewed in three respects:
• as the change of the currency option price relative to a change in the currency price. For instance, an option with a delta of 0.5 is expected to move at one half the rate of change of the currency price. Therefore, if the price of a currency goes up 10 percent, then the price of an option on that particular currency is expected to rise by 5 percent.
• as the hedge ratio between the option contracts and the currency futures contracts necessary to establish a neutral hedge. Therefore, an option with a delta of 0.5 will need two option contracts for each of the currency futures contracts.
• as the theoretical or equivalent share position. In this case, delta is the number of currency futures contracts by which a call buyer is long or a put buyer is short. If we use the same example of the delta of 5, then the buyer of the put option is short half a currency futures contract.
Traders may be unable to secure prices in the spot, forward outright, or futures market, temporarily leaving the position delta unhedged. In order to avoid the high cost of hedging and the risk of unusually high volatility, traders may hedge their original options positions with other options.
This method of risk neutralization is called gamma or vega hedging.

Currency Options

Currency Option Delta

Currency Option Gamma

Currency Option Vega

Currency Option Theta