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Leverage Factor


The expected or actual percentage price change in an option‘s value (or the value of other derivatives position) in response to a 1% (100 bps) increase in the cash value of the underlying asset. If the option’s delta equals 1.0, leverage factor would be equal to leverage or gearing. In general, leverage is given by the following formula:

Leverage Factor

For example, if an option’s delta is 0.6, the underlying price is $100 and the option price per one unit of the underlying is $5, then:

Leverage Factor Example

This indicates leverage is 1400%.

This measure is sometimes expressed as a ratio.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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