What is Delta in options with an example?

An option is considered ITM when its strike price is favorable compared to the underlying asset's current price, offering the potential for immediate profit upon exercise. Conversely, an OTM option has an unfavorable strike price, making it less valuable initially.

The ATM category signifies a neutral position where the option's strike price aligns with the current market price of the underlying asset. Here, the option's value depends on the expected volatility and time remaining until expiration.

Delta, in the context of options trading, serves as an indicator of an option's "moneyness," a term that describes its relative position with respect to the underlying asset's price. This metric is crucial in assessing the option's potential profitability and risk exposure.

To illustrate, a call option with a delta of 0.10 indicates that it is OTM, meaning its strike price is above the current market price of the underlying asset, reducing its intrinsic value. A delta of 0.50, on the other hand, suggests the option is ATM, with its strike price equal to the market price.

An option with a delta of 0.80, representing an ITM position, indicates that its strike price is below the market price, giving the holder the potential for profit. This high delta value reflects the option's increased sensitivity to changes in the underlying asset's price.