The current stock price is $50, and a put is priced at $3.59201. If the stock rises to $50.10, the price of the put will be $3.549152 and if the stock drops to $49.90, the price of the put will be $3.635261. If the stock jumps to $52, what is your best estimate of the new price of the put using the put's delta and gamma?
A) 2.8095
B) 2.7309
C) 2.6523
D) 4.5317

Question

Quizplus · Accepted Answer

The delta of the put can be estimated as the change in the put price divided by the change in stock price: (3.549152 - 3.59201) / (50.10 - 50) = -0.42858. The gamma can be estimated as the change in delta divided by the change in stock price: ((3.635261 - 3.59201) / (49.90 - 50) - (-0.42858)) / (50.10 - 50) = 0. The new put price is estimated using the formula: new put price = old put price + delta * change in stock price + 0.5 * gamma * (change in stock price)^2. With gamma approximately 0, the new put price is 3.59201 + (-0.42858) * (52 - 50) = 2.8095.

The Current Stock Price Is $50, and a Put Is