Given a small change in the value of the underlying stock, the change in an option's price is approximately equal to the change in stock value:
A) divided by delta.
B) divided by (1 − Delta).
C) divided by (1 + Delta).
D) multiplied by (1 − Delta).
E) multiplied by delta.

Question

Quizplus · Accepted Answer

The delta of an option measures the sensitivity of the option price to changes in the underlying stock price. The option price will change by a multiple of the delta when the stock price changes. Therefore, the change in the option price is equal to the change in stock value multiplied by delta.

Given a Small Change in the Value of the Underlying