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 MayWhat would happen to the delta factor?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.
c) It would increase to almost 0.
The delta factor represents the expected premium change subsequent to a one unit move in price of the underlying asset.
With put options, a decrease in the value of the underlying moves the option deeper in-the-money.
An option which is deep in-the-money and near to expiry has more intrinsic value and less time value.