Chapter 05 · Section 5.1

Example - Delta Factor

Suppose the same American option: June 90 XYZ Call, were nearer expiration and deep in-the-money.

Current date            May 
        
Current price of XYZ :  $97
Current premium      :  $ 8
Gamma                :  0.2
Delta                :    ?

a) It would still be 0.5.
b) It would increase to almost 1.0.
• c) It would decrease to almost 0.
  No. When an option moves deeper in-the-money and nearer to expiry, the premium for the most part consists of intrinsic value. Because of this, a move in the price of the underlying is likely tochange the premium on almost a one-to-one basis.

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