# Actual CFA exam Q

Dynamic hedging… If the stock prices goes UP I understand the call delta will approach one but the answer says the put delta will INCREASE to ONE…wouldn’t the put delta DECREASE toward -1 b/c the put is worth less?

Yes, Put delta will decrease as prices rise. Does the CFAI say differently?

I think put delta would decrease towards 0 right?

Put delta would decrease towards 0 not -1. Puts move towards 0 or -1 as time decreases depending on their moneyness and volatility. Call delta does the same but with 0 and 1 as the two points it moves towards.

Or increase towards zero —> move towards zero is a better way of saying it . . .

If stock price increases, put delta should increase from -1 to 0, I believe.

Stock increases: Call Delta: 0 --> 1 Put Delta: -1 --> 0

It depends, if stock prices increase but the put is DEEP in the money with a short time to expiration, Delta could remain firmly planted at -1. Moneyness and time are key here.

The answer (from CFAi) says the put delta will INCREASE toward 0 if the stock goes UP…WHY??? the put is worth less is it not? what the f bomb am I missing…

I guess a way to think about it is view the delta as correlation. With a put, when the stock price goes down 1 dollar, you gain 1 dollar, perfectly negatively correlated. As the stock price rises, this perfectly negative correlation moves towards zero because there is not that direct relationship anymore.

Think of delta as the correlation coefficient of the movement of price of the option vs the price movement of the underlying. Puts are 0 to -1, calls are 0 to 1. Addressing puts, if they are in the money and the stock price drops, their value will increase (move the opposite direction) by an equivalent amount. However, depending on how in the money they are, if they are within a normal margin of in the money and a decent amount of time remains and the stock price rises, the price of the put may drop by a greater amount. As the underlying price moves to where the put is at the money or out of the money, the delta will move towards 0 meaning it has low correlation with movements in the price of the underlying.

Dude nibs, i think i’m picking up your brain waves this weekend.

Haha, BS, we think alike.

^^^yet again.

3 Letters, the delta must fall between -1 and 0, so a move from -.5 to -.4 is actually an increase in delta.