Explanation:
Futures contracts are linear due to their payoff, but option contracts are not linear. Options are somewhat affected by the distance between the current market price and the strike price on the option. The delta of a linear derivative needs to remain constant, but it does not need to equal one.
(Book 4, Module 48.1, LO 48.a)
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Question 68
A derivatives trader is considering the differences between linear and nonlinear derivatives. The trader finds that:
A
the delta of linear derivatives can change as long as it remains close to one.
B
equity index futures are linear.
C
the delta of linear derivatives must equal one.
D
equity index options are linear.
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