How do you use delta in option trade?

Delta is the measurement of the sensitivity of the price of an option to the price movement of the underlying stock.

Delta can be useful in predicting profits, having a feel of the probability of the option ending up in the money by expiration under normal conditions and for hedging.

In predicting profits, an option with 0.5 delta would move $0.50 when the underlying stock moves $1. By summing up the delta of your options, you would know how much profit you would make with a predicted move on the underlying stock. For instance, if the underlying stock is expected to move by $5, an option with 0.5 delta would move $2.50.

Delta is also a measure of the probability that an option would end up in the money by expiration. An at the money option has 0.5 delta has a 50% chance of ending up in the money. The deeper in the money the option goes, the bigger the delta and hence the higher the chance it will end up in the money. Options with delta of 1 would almost definitely end up in the money by expiration under normal conditions.

Delta is perhaps most important for hedging in the area of delta neutral hedging. Read the related links below for more info.