Chapter 05 · Section 5.1
Example - The Delta Factor
Consider the same American option: June 90 XYZ Call.
Current date : February
Current price of XYZ : $91
Current premium : $5.50
Gamma : 0.2
Delta : ?
With XYZ trading at $90, the delta of this call is 0.5 and the premium $5.
If the price of XYZ were to move up $1 to $91 and the premium become $5.50, the delta factor will change to:
c) 0.7
Yes. Given a positive gamma factor of 0.2, the delta factor, as a result of a one-unit increase in the underlying, will increase by 0.2 to 0.7. New delta factor = old delta + (gamma x one-unit change in underlying) 0.7 = 0.5 + ( 0.2 x 1.00)Continue
d) 0.3
a) 0.2
b) 0.5
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