Question

Choose T/F for the following:

(a) Gamma measures the option price change when the stock price increases.

(b) Vega measures the change in the option price when there is an increase in volatility.

(c) Theta measures the change in the option price when there is an increase in the time to maturity.

(d) Rho measures the change in the option price when there is an increase in the interest rate.

(e) For a call option, delta is not negative.

(f) Delta for an option is smaller than 1.

(g) For a put option, vega is not negative.

(h) Vega tends to be greater for at-the-money options than deep out-of-the money options.

(i) For a call option, rho is not positive.

(j) For a call option, psi is not positive.

Answer 1

Q1: False.  

As gamma measures the option's delta over change in stock's price . Delta measures the change in option price when underlying stock value changes.Gamma act as accelaration to delta .

Q2: True.

Yes Vega measures the option's price change to change in volatility of option price. it is sensitive to implied volatility of option price.

Q3: True.

Yes theta measures the change in option price with respect to option's time to expiration. i.e it deals with the option's maturity life or time to expiration.

Q4: True.

Yes Rho shows the value of option price when there is change in interest rate of option. it is related in theory based.

Q5; True.

Delta is positive for call option and negative for all put options.

Q6: True.

Delta value ranges between 1 to -1 ( 100 to -100 for some other convention) .

Q7: True.

Yes for option vega is always positive, as it shows the volatility sensitivity of option price.

Q8: True.

Yes vega tends to be highest at the money at the money vega seems to be worth or valued with respect to its change in its implied volatitlity. and it is lowest out the money it is worthless at out the money position.

Q9: False

Rho is positive for all calls as higher inerest rate increase calls premium.

Q10: true for all call option psi is not positive.