Call option (price increases more if underlying increase or if underlying decrease)

CFA Level III
#1

Thoughts?

#2

This is delta

#3

Underlying Increase. Delta will underestimate the appreciation

Opposite for Puts. Underlying decrease, delta will underestimate

#4

Thanks!!!

#5

No, it isn’t.

It’s gamma.

#6

Draw a picture.

I’ll get you started:

  • Strike price is $100
  • Underlying price is $80
  • Underlying price change is either:
    • −$70
    • +$70