Delta spread is an options trading strategy where traders adopt delta neutral positions by buying and selling options simultaneously in direct proportion to the neutral ratio.
Delta is either positive or negative: between 0 and 1 for a call option and negative 1 to 0 for a put option.
The negative value for call options occurs because a rise in the underlying asset’s price makes call options more expensive.
How is delta calculated?
Delta is calculated as a ratio comparing an option’s price change to the price of its underlying asset. If a stock option’s delta is 0.50, and the underlying stock increases by $1 per share, the finance option will rise by $0.50 per share.
Put option deltas range from -1 to 0 because as the underlying security increases, the value of put options decreases. If the put option has a delta of -0.50, and the price of the underlying asset increases by $1, the put option’s cost will decrease by $0.50.