delta of put option option

maratikus

The delta if an in-the-mpney put option is always less than -0.5
a. Always True
b. Always false
c. Could be, but does not have to be

iteracom

a) Delta of at-the-money put is -0.5. As option goes in-the-money, the absolute value of its delta grows (gets closer to -1).

SpyAli

It's C. Consider an extreme case where rates are 20%, dividends are 0%, and a 1-year put is 1% in the money. So, the forward is 19% out-of-the-money, hence delta > -0.5.

wilslm

Answer C. the delta can be graphically represented by the tangent line. If you figure the payoff diagram of a put option, the the delta for St<X is -1 and 0 when St>X. Problem is that the graph of an option is not exactly a straight line but more some sort of an hyperbole with the tangent line less steep for St<X (when the option is in the money), hence larger than -1 and then increasing to 0.



Edited 1 time(s). Last edit at Friday, March 18, 2011 at 01:58PM by R Cash.

lucasg85

C.

Even if we take a B-S risk free rate, values of puts that are barely "in-the-money" will have a delta > -0.5 if the time till expiration is very large (big T-t), and/or if the volatility is high.

The "+/- 0.5" is just an approximation, not a rule.

Volatility and long time till expiration are good if you are deep out of the money, yet they are not if you are just in-the-money.