Basic Points

• Hard deltas refer to any deltas not belonging to options. 
• They come from shares and also futures contracts (which are not options on futures). 
• Hard deltas have profit and loss dynamics which are linear, meaning they do not change because of the passage of time, but instead only price movement. 
• Since the payout structure of hard deltas is linear, as a standalone element hard deltas have both uncapped risk and uncapped opportunity. The explanation here is that they both keep going up or down, rather than plateauing or slowing down. 
• Hard deltas are unlike convexity, which has a curved shape on a profit graph. When instead we speak of convexity, what is meant are nonlinear (curved) considerations.

Advanced: Benefits and Drawbacks

Hard deltas have the advantage of not decaying over time, which means they do not have theta (the time decay of an option’s price). They also have no vega (sensitivity of an option’s price to implied volatility), which means they are immune to direct effects from implied volatility (the expected percentage range over the next year based on option prices and with 68.3% confidence). 

Using a mix of hard deltas can often add meaningful stability to option strategies, as well as to help shape them synthetically (using different option structures that have the same logical dynamics), and modify their directional risk. 

However, since their payout structure is linear (directional exposure remains fixed), as a standalone element, hard deltas have both uncapped risk and uncapped opportunity. This is why stop losses (preset exit points used to limit losses beyond a certain point) are frequently used with hard deltas if they are not being hedged (active rebalancing done to neutralize risks) with options.