- CFA Exams
- CFA Exam: Level II 2021
- Study Session 14. Derivatives
- Reading 38. Valuation of Contingent Claims
- Subject 6. Option Greeks and Implied Volatility

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**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.

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**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. |