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Answer: Long call option expiring in 5 days with strike price of USD 60
**B is correct.** 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. **A, C, and D are incorrect.** The option in choice B either has a shorter maturity, is closer to at-the-money, or both.
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A risk manager on the derivatives trading desk of an investment bank is monitoring the sensitivity measures for several of the desk's positions in options on stock FIR. The current market price of the stock is USD 60. Which of the following options on stock FIR has the highest gamma?
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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