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Answer: Scenario C
The correct answer is Scenario C. This is because the call option is deep in-the-money, which means it has a delta close to one. Therefore, when the underlying stock price falls by USD 1, the value of the call option will decrease by approximately USD 1. On the other hand, the put option is deep out-of-the-money, indicating that its delta is close to zero. Consequently, when the stock price falls by USD 1, the value of the put option will increase by a very small amount, close to zero. Scenario C, where the call value decreases by USD 0.94 and the put value increases by USD 0.01, is the closest to satisfying these conditions. This scenario aligns with the expected behavior of the options' values in response to a change in the stock price, given their respective deltas.
Author: LeetQuiz Editorial Team
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The current stock price of a company is USD 80. You are analyzing the potential impact of this decline on both a call option and a put option. stock. Both options have an exercise price of USD 50 and a time to maturity of 5 days. Which of these scenarios is most likely to occur if the stock price falls by USD 1?
| Scenario | Call Value Change | Put Value Change |
|---|---|---|
| A | Decreases by USD 0.07 | Increases by USD 0.89 |
| B | Decreases by USD 0.07 | Increases by USD 0.01 |
| C | Decreases by USD 0.94 | Increases by USD 0.01 |
| D | Decreases by USD 0.94 | Increases by USD 0.89 |
A
Scenario A
B
Scenario B
C
Scenario C
D
Scenario D
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