Chapter 05 · Section 5.1
Change in the Delta Factor
If the hedger instead considered a put with a delta factor of -0.25: How many contracts would he need to delta hedge his stock position?
a) 2
b) 4
c) 25
The delta factor approximates the change in the premium subsequent to a one unit change in the value of the underlying.
A small delta factor means that a change in the price of the underlying does not change the premium very much.
The aim of the Delta hedge is to offset gains or losses on movements in the price of the underlying with losses or gains in the option premium.