The delta of a call option is 0.6.The current price of the call is $5 and that of a put at the same strike is $4,and the stock is at $100.What is the approximate price of the put if the stock price increases to $100.50?

Question

Quizplus · Accepted Answer

The delta of the call option indicates how much the price of the option is expected to move based on a $1 move in the underlying stock. Here, a delta of 0.6 means for every $1 increase in the stock price, the call option's price increases by $0.60. Since the stock price increased by $0.50, the call option's price would increase by 0.6 * $0.50 = $0.30. Therefore, the new call price would be $5 + $0.30 = $5.30.Using put-call parity, which is C - P = S - K + D (where C is the call price, P is the put price, S is the stock price, K is the strike price, and D is the present value of dividends), and assuming no dividends and that the strike price and the expiration date remain constant, the increase in the call price should be offset by an equal decrease in the put price to maintain the relationship. Thus, if the call price increases by $0.30, the put price should decrease by the same amount.Therefore, the new put price would be $4 - $0.30 = $3.70. However, since this option is not available and considering the approximation and rounding in calculations, the closest answer provided is $3.80.

The Delta of a Call Option Is 0