- CFA Exams
- CFA Level I Exam
- Topic 7. Derivatives
- Learning Module 34. Valuation of Contingent Claims
- Subject 6. Option Greeks and Implied Volatility
CFA Practice Question
When gamma is large, ______
B. the option price must be very large.
C. for a small change in underlying price, there will be a large change in option price.
D. None of these statements is correct.
A. the underlying price must be very large.
B. the option price must be very large.
C. for a small change in underlying price, there will be a large change in option price.
D. None of these statements is correct.
Correct Answer: D
Gamma measures how sensitive the delta is to a change in the underlying.
User Contributed Comments 4
| User | Comment |
|---|---|
| americade | why not C ? |
| danlan2 | When delta is large, for a small change in underlying price, there will be a large change in option price. When gamma is large, for a small change in underlying price, there will be a large change in delta. |
| jhmorris | C is incorrect because gamma measures the sensitivity of the option's delta to changes in the price of the underlying asset. C refers to a large change in option price rather than option delta. |
| bbadger | There's never a circumstance where the underlying price will have a small change and the option price will have a large change. The most the option price can change is equal to the underlying change on deep in the moneys or very close to expiration. |