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

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**CFA Practice Question**

A stock is selling for $69.88. The risk-free rate is 5%.

Call option A: Exercise price X = $70, Days to option expiration = 120.

Call option B: Exercise price X = $75, Days to option expiration = 120.

II. VEGA

III. GAMMA

IV. GAMMA

Consider the following call options on this stock:

Call option A: Exercise price X = $70, Days to option expiration = 120.

Call option B: Exercise price X = $75, Days to option expiration = 120.

Which statement(s) is (are) true?

I. VEGA

_{A}> VEGA_{B}II. VEGA

_{A}< VEGA_{B}III. GAMMA

_{A}> GAMMA_{B}IV. GAMMA

_{A}< GAMMA_{B}A. I and III

B. II and III

C. I and IV

**Explanation:**Note that option A is near-the-money. Vega tends to be greatest for an option near-the-money, so I is correct.

Gamma is large when the option is near-the-money, so III is correct.

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