- CFA Exams
- CFA Level I Exam
- Topic 7. Derivatives
- Learning Module 32. Valuation of Contingent Claims
- Subject 6. Option Greeks and Implied Volatility
CFA Practice Question
Which statement is correct?
I. For a call option, the more gamma increases, the greater the underlying value.
II. For a call option, the more delta increases, the greater the underlying value.
Correct Answer: Neither of them
For a call option, option price increases the greater the underlying value.
User Contributed Comments 4
| User | Comment |
|---|---|
| LRS24 | As the stock price increases the call option becomes relatively more in the money and thus delta increases also towards 1. |
| bmeisner | Yeah II is of course right. Delta is increasing in share price. |
| Smiley225 | Also had II as correct. Deeper in the money, delta moves towards 1. |
| jhmorris | The given answer is correct because the two statements do not make any reference to the moneyness of the options, rather the value of the underlying asset. In this case, it's saying that a call option on an asset valued at $100 would have gamma/delta changes that are greater than an asset valued at $25, which would be incorrect. |