Question

"Consider the following 4 options on AAPL: (a) 1-year 25-delta call, (b) 1-year 25-delta put, (c) 2-year 50-delta call, (d) 2-year 60-delta put. Which of the 4 options goes down the most in value if AAPL stock price goes up?"

Answer 1

Delta is the amount an option price is expected to move based on a $1 change in the underlying stock.

Calls have positive delta, between 0 and 1

Puts have a negative delta, between 0 and -1

For example, if a put option has a delta of 25, and the price of stock increases by 1, then the price of the put option will decrease by 0.25.

In our case (d) 2-year 60-delta put is correct

Firstly only a put option will go down in value when stock price incrreases

Secondly, as delta of 60 put is more than 25 put it will go down more in response to an increase in stock price.

Please reach out for any clarifications