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
If the price of XYZ were to drop $2, the new premium should be:
e) 4.00
No. It is true that for the first 1 dollar change in the price of the underlying the premium declines by $0.50. But for the next 1 dollar change the decline of the premium is less because the delta factor has changed.
a) 4.50
b) 6.00
c) 4.20
d) 4.60
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