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 : ?
What would happen to the delta factor?
a) It would still be 0.5.
b) It would increase to almost 1.0.
c) It would decrease to almost 0.
The delta factor represents the expected premium change subsequent to a $1 price move in the underlying asse
The premium consists out of two parts: intrinsic value and time value.
An option which is deep in-the-money and near to expiry has more intrinsic value and less time value.