Chapter 05 · Section 5.1

Delta Factor

Suppose the same American option: June 100 XYZ Put, were nearer expiration and deep in-the-money(the price of XYZ has decreased):

Current date             May   

Current price of XYZ :  $ 93                
Current premium      :  $  8 
Gamma                :     0
Delta                :     ? 

a) It would still be -0.4.
• b) It would increase 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 to change the premium on almost a one-to-one basis.
  c) It would increase to almost 0.

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