Explanation:
Delta is one of the "Greeks" used in options pricing and risk management. It primarily measures the sensitivity (or the rate of change) of the option's theoretical value with respect to a $1 change in the price of the underlying asset (the stock).
While Delta is sometimes informally used by traders as a proxy for the probability that the option will expire in the money, its formal and primary definition in hedging and risk management is the rate of change of the option's price with respect to the underlying's price.
Option C refers to Rho, and Option D refers to Theta.
Ultimate access to all questions.
No comments yet.
Q.8 In an options trading seminar, an instructor presents a case where a trader buys a European call option on a stock currently priced at $100. The option has a strike price of $100 and expires in one year. Given the stock’s volatility and the market conditions, the instructor calculates the delta of the option and uses it to discuss hedging strategies. What does the delta of this call option primarily represent?
A
The probability that the option will be exercised at expiration.
B
The rate of change of the option's price with respect to the stock's price.
C
The sensitivity of the option's price to changes in the risk-free rate of interest.
D
The time decay of the option's value as it approaches expiration.