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Basic Question 31 of 32

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 ______.

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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Thanks again for your wonderful site ... it definitely made the difference.
Craig Baugh

Craig Baugh

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.