CFA Practice Question

There are 227 practice questions for this study session.

CFA Practice Question

When gamma is large, ______

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.
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