Chapter 05 · Section 5.1

The effect of the price of the underlying

The relationship between a change in the price of the underlying and a change in the premium is called the delta. Graphically, the delta corresponds to the slope of (the tangent to) the curve, and therefore, it is not constant.The delta of this call is 0.35 when the price of the underlying is 40. It is 0.75 when the price of the underlying is 45. To determine the change in delta brought about by a change in the price of the underlying, one uses the gamma.