CFA Practice Question

There are 227 practice questions for this study session.

CFA Practice Question

For a put option with a delta of 0.2, a $0.5 increase in the underlying price (current price: $72) will cause the price of the put option to (increase? decrease?) ______ by ______.
Correct Answer: This question itself is wrong. A put option cannot have a positive delta!

User Contributed Comments 5

User Comment
yly14 thank you for the heads up, we'll definitely to looking closely to find WRONG questions at the exam!!
oluji and hope to get credit for finding wrong questions :)
bmeisner The negative is implied, cmon... Quite frequent to hear an OTM put referred to as a 25 delta put. Delta after all is just a measure of the likelihood that the option ends up in the money at expiration. 25% chance of the stock finishing below the strike based on the B-S model. That's quite obvious by the use of the cumulative standard normal probability distribution. It wouldn't make any sense if someone said there's a negative 25% chance of this option ending up in the money.
bbadger Delta has 3 definitions. 1. chance the option expires in the money. 2. hedge ratio. 3. change in option price for a one tick (pip, dollar...) change in the price of the underlying. I never really think of delta as being + or -, though it'll prob be on the test. Also, call hedging is opposite, put is the same (i.e. buy calls, sell futures: buy puts, buy futures)
birdperson (:~ {|)
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