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Answer: Long call option expiring in 5 days with strike price of USD 60
Gamma is defined as the rate of change of an option's delta with respect to the price of the underlying asset, or the second derivative of the option price with respect to the asset price. Therefore, the highest gamma is observed in shorter maturity and at-the-money options, since options with these characteristics are much more sensitive to changes in the underlying asset price. The gamma is highest for a shorter maturity call option because delta's move toward either 0 or +1.00 is more imminent. In this case, option B, which is a long call option expiring in 5 days with a strike price of USD 60, has the highest gamma because it has a shorter maturity and is at-the-money, making it the most sensitive to changes in the stock price. Options A, C, and D are incorrect because they either have a longer maturity, are not at-the-money, or both.
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A professional specializing in risk management within the derivatives trading segment of a financial institution is diligently monitoring the sensitivity measures of their diverse option positions for the stock FiR. The current market price of the FiR stock stands at USD 60. Among the following options available on the stock FiR, which one is likely to have the highest gamma value?
A
Long call option expiring in 5 days with strike price of USD 30
B
Long call option expiring in 5 days with strike price of USD 60
C
Long call option expiring in 30 days with strike price of USD 30
D
Long call option expiring in 30 days with strike price of USD 60
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