Chapter 05 · Section 5.1

Premium - Price Rise

Now consider the following American option: June 100 XYZ Put .

Current date         :    February  
           
Current price of XYZ :      $102               
Current premium      :      $  5 
Gamma                :         0
Delta                :     -0.40

If the price of XYZ were to increase by $2, the premium will:

a) increase $0.40.
No. The delta factor is negative, which implies that an increase in the value of the underlying will lead to a decrease in the premium.
b) increase $0.80.
c) decrease $0.40.
d) decrease $0.80.

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