Delta hedging - need confirmation of understanding!

CFA Level III Derivatives
#1

In the text, I have seen it as:

Delta = change in option price / change in underlying price. Basically, how the option price and the underlying price change relative to each other.

Delta ratio = shares to hold / underlying shares in option. How many shares you should be short if you are long the related option. Or conversely, how many shares you should be short to offset a long position in the related option.

Anyone care to explain the overall relationship between the two delta formulas? Thanks.

#2

It is intuitive anyway. I can do the math but cfai explains better

#3

I actually think it’s merely that chg in options price / chg in share price is just the concept of delta. The ratio calculation (# underlying shares to hold / # options contracts) is the calculation to worry about for exam.

#4

I think if there will be a question on the test it’ll ask the amount of shares needed to hedge the positino if delta changes by x. or it’ll ask the NP needed and it’ll provide you a strike price and current price to choose from.

at least that’s why i’ve seen on a couple of the mocks. AM and PM

#5

think of it this way: long 1 common stock has a delta of 1