Can we blindly say that when delta for call option is greater than 0.5, the option is in the money?
This what Schweser says
If a call option is in-the-money, its delta will generally be above 0.5, and as it approaches expiration, its delta approaches 1.0. Likewise, if the option is out-of-the-money, its delta will usually be below 0.5, and as it approaches expiration, its delta falls to zero.
Although schweser uses word “generally” so not sure.
Yes.
From the BSM model, an at-the-money call option’s delta is 0.5. Other option pricing models probably differ slightly.
Interestingly in EOC 11 they had given a table with call deltas and all deltas
Exercise Price Market Call Price Call Delta Market Put Price Put Delta 55.00 12.83 4.7 0.24 –16.7 65.00 3.65 12.0 1.34 –16.9 67.50 1.99 16.5 2.26 –15.3 70.00 0.91 22.2 3.70 –12.9 80.00 0.03 35.8 $ 12.95 –5.0
this is table where current price is 67.79 hence I was expecting the first two options delta higher than third one. and somewhere above 0.5 (or 50) but its not the case here.
Also, I don’t see that absolute values of call delta and put delta add up to 100.
Am I missing something?
I looked at that table before; I have no idea what the call and put deltas are supposed to mean there.
makes me feel better
thanks!
You’re welcome.
But the option price should be time dependent, does BSM model alwasys shows call option’s delta is 0.5? Thanks.
I believe that it’s independent of time to expiry.
The deltas of options that are very slightly in-the-money will temporarily move down as expiration approaches. But eventually they will move up towards 1.0.