Options Greek Parameters

Question 1

Define Delta

Answer 1

Delta is a measure of the sensitivity of an option’s price to changes in the price of the underlying asset. It represents the rate of change in the option’s price with respect to changes in the underlying asset’s price.

Question 2

Define Vega

Answer 2

Vega is the rate of change of the value of a derivativesportfolio with respect to volatility

Question 3

Define Theta

Answer 3

Theta of a derivative (or portfolio of derivatives) is the rate of change of the derivative’s value with respect to the passage of time

Question 4

Define Gamma

Answer 4

Gamma is the rate of change of delta with respect to the priceof the underlying asset

Question 5

If Gamma is small then Delta changes ……. and infrequentadjustments have to be made to maintain delta neutralit

Answer 5

slowly

Question 6

Gamma neutrality provides protection against ….. movements (‘jump risk’) in the asset price between rebalancing

Answer 6

large

Question 7

Gamma is greatest for options that are ………….

Answer 7

near-the-money

Question 8

Delta neutrality can be reestablished by transacting on the ………….. ………

Answer 8

underlying asset

Question 9

‘Delta’ can be interpreted as the:

Answer 9

*Hedge ratio
*Probability that option will expire in the money
*Equivalent position in the underlying

Question 10

The theta of a call or put is usually

Answer 10

negative

Question 11

The theta of a call or put being negative (usually) means that, as time passes, ceteris paribus (i.e. with theprice of the underlying asset and its volatility remaining the same), the value of a call or put option …….

Answer 11

declines

Question 12

Theta can be positive when ……

Answer 12

a European put option is deep in-the-money

Question 13

Passage of time affects option value through its effects on Volatility as…..

Answer 13

there is less time for it to have an impact, it is negativefor both calls and puts