Question

Suppose the delta of a call is 0.75. Approximately, how much will the price of the call change if the underlying stock increases in value by $1.00?

o $1.33
o More Information Needed
o $1.00
o $1.75
o $0.75

Answer 1

The price of the call option is expected to increase by approximately $0.75 if the underlying stock increases in value by $1.00.

Step-by-step explanation:

The delta of a call option represents the rate of change of the option price with respect to changes in the underlying stock price. In this case, the delta is given as 0.75. This means that for every $1 increase in the underlying stock price, the price of the call option is expected to increase by 0.75.

Therefore, if the underlying stock increases in value by $1.00, we can multiply the delta (0.75) by the change in stock price ($1.00) to find the approximate change in the price of the call option. The calculation would be 0.75 * $1.00 = $0.75.

Thus, the price of the call option is expected to increase by approximately $0.75.