Chapter 05 · Section 5.1

Example - Price Drop

Consider the same American option: June 90 XYZ Call.

Current date         :    February 
           
Current price of XYZ :      $90               
Current premium      :      $ 5
Gamma                :      0.2 
Delta                :      0.5

• a) 4.50
  No. It is correct that the premium will decrease, but the delta factor describes the premium change subsequent to a 1 unit change in the price of the underlying. In this example it changed by 2 units.
  b) 6.00
  c) 4.20
  d) 4.60
  e) 4.00

(Click here for help)