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 has the lowest strike?"

"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 has the highest strike?"

"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 has its strike price closest to the current stock price?"

"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 for a call option is 0.5 when it is at the money i.e. stock price is near the strike price.

1. For an in-the-money call the delta is the highest and for an out-of-the-money put, the delta is lowest. So, Option B will be correct/

2. The highest strike will be for Option D i.e. 60-delta put because it is in-the-money put.

3. Strike price closest to the stock price is for at-the-money options whose delta is near 0.5. Hence, Option C.

4. A put will go down in value if the stock price goes up. Hence, the correct answer will be Option D as it has the highest delta.