Each Option has an individual “delta”, the change in value of an option in relation to the change in the underlying asset’s price. Combined option positions add positive deltas and subtract negative deltas from each option until they arrive at the Position Delta.
Much like the delta of each individual option, the position delta can be positive or negative. Long Calls and Short Puts both have positive deltas and increase the overall position delta. Buying an underlying asset also increases delta. Long Puts and Short Calls both have negative delta and decrease the overall position delta. Short selling the underlying asset decreases the position delta. The actual formula for calculating position delta is as follows:
The position delta should be calculated for each leg (set of option contracts) used in a spread, butterfly, straddle, condor, or other multiple option trade. After each the position delta for each leg is calculated, add all negative and positive values together. This gives you the strategy’s combined position delta.
You should note that the position delta is not a static number. Since Gamma changes delta at each price value, Gamma also changes the rate position delta changes. Never expect your position delta to be constant.
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