Chapter 06 · Section 6.1

Relative Change-1

In other words, the relative change in the premium for a given change in the value of the underlying is greater the more an option is out-of-the-money. Let's look at an example using the purchase of Pepsi Co. January Calls.On October 10 Pepsi Stocks are quoted at $ 23 3/8. An in-the-money call (Jan 21 5/8) is traded at $ 2 3/4, an out-of-the-money call (Jan 25) at $ 1 1/4.

Pepsi Co. 
Stock         Call          Call  
10.10.94   Jan 21 5/8     Jan 25    
 23 3/8     2 3/4          1 1/4 

On October 16,  the Wall Street Journal quotes 
at the following prices:
16.10.94
 24 1/4     3 3/16         1 9/16 
                       
Absolute change in the positions
 7/8        7/16            5/16         

Relative % Change
 3.7%      15.9%            25%