delta is the amount by which an option’s price will change for a corresponding one point change in price by the underlying entity…. (I don’t want to get too technical).
Basically delta will help us know if we want our underlying, the S&P index, to go up or down. If our delta is +30, then it’s as if we owned 30 shares of the S&P so we would want the S&P to move up. Conversely, if our delta is negative, then we would profit from the index moving downwards.
Back to the example where our delta is at +30, we know we want the S&P index to move up. But what happens when it does move up? Well, our delta will decrease. Eventually it will reach an optimal point where our delta will be 0.
Ideally we want our delta to be zero, delta neutral. At this point our unrealized profit is at its maximum and our risk is at a minimum.
