Chapter 17: The Greek Letters

Question 1

(T/F) Each Greek letter measures a different dimension to the risk in an option position and the aim of a trader is to manage the Greeks so that all risks are acceptable.

Answer 1

True

Question 2

What is a naked position?

Answer 2

It is an option to do nothing

Question 3

What is a covered position?

Answer 3

Involves buying x number of shares as soon as the option has been sold. (Covering yourself to the initial price)

Question 4

Definition of Delta

Answer 4

defined as the rate of change of the option price with respect to the price of the underlying asset; it is the slope of the curve that relates the option price to the underlying asset price

Question 5

Definition of delta:
_____ as the rate of ____ of the option price with _____ to the _____ of the underlying asset; it is the _______ of the curve that ______ the option price to ___ underlying ______ price

Answer 5

defined as the rate of change of the option price with respect to the price of the underlying asset; it is the slope of the curve that relates the option price to the underlying asset price

Question 6

Definition of delta:

_________ __ the rate of ______ of the ________ _______ with respect to the price of the ________ _______; it is the _______ __ ___ ______ that relates the _____ _____ to the underlying asset _____

Answer 6

defined as the rate of change of the option price with respect to the price of the underlying asset; it is the slope of the curve that relates the option price to the underlying asset price

Question 7

what is delta S? (definition)

Answer 7

Delta S is a small change in the stock price

Question 8

what is delta c? (definition)

Answer 8

delta c is the resulting change in the call price

Question 9

what is a position with a delta of zero referred to as?

Answer 9

delta neutral

Question 10

What is the term for when a hedge has to be periodically adjusted?

Answer 10

rebalancing