Moneyness and Delta
The next observation is the effect of moneyness on the option’s delta.
Moneyness describes the degree to which the option is in- or out-of-the-
money. As a general rule, options that are in-the-money (ITM) have deltas
greater than 0.50. Options that are out-of-the-money (OTM) have deltas
less than 0.50. Finally, options that are at-the-money (ATM) have deltas that
are about 0.50. The more in-the-money the option is, the closer to 1.00 the
delta is. The more out-of-the-money, the closer the delta is to 0.
But ATM options are usually not exactly 0.50. For ATMs, both the call
and the put deltas are generally systematically a value other than 0.50.
Typically, the call has a higher delta than 0.50 and the put has a lower
absolute value than 0.50. Incidentally, the call’s theoretical value is
generally greater than the put’s when the options are right at-the-money as
well. One reason for this disparity between exactly at-the-money calls and
puts is the interest rate. The more time until expiration, the more effect the
interest rate will have, and, therefore, the higher the call’s theoretical and
delta will be relative to the put.