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Basic Question 12 of 32
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.
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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Learning Outcome Statements
interpret each of the option Greeks;
describe how a delta hedge is executed;
describe the role of gamma risk in options trading;
define implied volatility and explain how it is used in options trading.
CFA® 2025 Level II Curriculum, Volume 5, Module 32.