What does "Delta" signify in options pricing?

Delta is a crucial concept in options pricing, representing the sensitivity of an option's value to changes in the price of the underlying asset. Specifically, it measures how much the price of an option is expected to change for a $1 change in the price of the underlying stock. A delta value can range from 0 to 1 for call options and from 0 to -1 for put options, indicating how the option's price reacts to movements in the underlying asset.

For example, a delta of 0.5 means that for every dollar increase in the underlying stock price, the price of the option would increase by approximately 50 cents. This sensitivity to price changes is critical for traders and investors in assessing the risk and potential profit associated with holding options.

In contrast, the other options refer to different sensitivities related to options pricing. Sensitivity to changes in interest rates pertains to the "rho" of an option, time decay is represented by "theta," and sensitivity to compound yield relates to "vega." All of these variables play significant roles in how an option is valued, but they do not specifically denote the relationship between an option's value and changes in the underlying asset price, which is what delta signifies.