- CFA Exams
- CFA Level I Exam
- Study Session 14. Derivatives
- Reading 38. Valuation of Contingent Claims
- Subject 6. Option Greeks and Implied Volatility
CFA Practice Question
Which of the following statements is (are) true with respect to option deltas?
II. The delta for a call is at its highest when the call is at-the-money.
III. For a portfolio to be considered delta-neutral, the fraction of shares that must be bought and sold for each call that is shorted must be equal to the call's delta.
IV. The delta for a short put will always be positive.
I. The sum of the deltas for a long call and a long put that have the same parameters should be equal to zero.
II. The delta for a call is at its highest when the call is at-the-money.
III. For a portfolio to be considered delta-neutral, the fraction of shares that must be bought and sold for each call that is shorted must be equal to the call's delta.
IV. The delta for a short put will always be positive.
A. III and IV
B. II and III
C. I, II, and IV
Explanation: I is incorrect because the sum of the deltas for a long call and a long put that have the same parameters should be equal to one.
II is incorrect because the delta for a call is at its highest when the call is very deep-in-the-money.
User Contributed Comments 5
| User | Comment |
|---|---|
| ljamieson | Long call, short put with same parameters equals one. |
| NickNT | Agree |
| ybavly | It should be zero since in the money call -delta is 1 and in the money put delta is -1 so they sum to zero |
| bbadger | Same parameters mean same strike price. Long call, short put is a long synthetic future, delta equals one (opposite, delta equals -1). Long both is a straddle, delta equals the difference between the two with that difference increasing the further away you are from At the Money. |
| somk | Ybavly, would you please provide a situation where calls and puts are in the money at the same time? |