A put option on ABC stock currently sells for $4.00. The exercise price and the stock price is $60. The put option has a delta of 0.5. If within a short period of time the stock price increases to $60.10, what would be the change in the price of the put option?
A)Increases by $0.05
B)Decreases by $0.05
C)Increases by $0.10
D)Decreases by $0.10

Question

Quizplus · Accepted Answer

The delta of a put option indicates how much the price of the option will move for every $1 move in the underlying stock price. Here, the delta is 0.5, meaning the option price will decrease by $0.50 for every $1 increase in stock price. Since the stock price increased by $0.10, the option price will decrease by $0.05 (0.5 * $0.10).

A Put Option on ABC Stock Currently Sells for $4