Answer: The call option with a strike price of $40.

## Explanation The delta-normal approach uses a linear approximation of option price changes based on delta (the first derivative of option price with respect to the underlying asset price). This approximation works best when the option is **at-the-money** because: - **At-the-money options** have delta values around 0.5, and the linear approximation is most accurate when the option price changes are relatively linear - **Deep in-the-money options** (strike $35) have delta close to 1.0, but the approximation may not capture gamma effects well - **Deep out-of-the-money options** (strike $45 and $50) have delta close to 0, and the linear approximation becomes increasingly inaccurate due to significant gamma effects With the current spot price of $40: - Strike $35: Deep in-the-money (delta ≈ 0.95-1.0) - Strike $40: At-the-money (delta ≈ 0.5) - Strike $45: Out-of-the-money (delta ≈ 0.05-0.2) - Strike $50: Deep out-of-the-money (delta ≈ 0.01-0.05) The **at-the-money call option** (strike $40) will have the delta-normal ES closest to the true ES because the linear approximation is most accurate for options that are not too far from at-the-money.

Author: LeetQuiz .