Question
Assume you have a long position in 7 American call stock option contracts. The current option price is 3.21, the current stock price is $65,
Assume you have a long position in 7 American call stock option contracts. The current option price is 3.21, the current stock price is $65, and the Delta of the option is 0.71.
What would be your estimate for the price of the call, if the stock price increases by $1.8?
Step by Step Solution
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There are 3 Steps involved in it
Step: 1
To estimate the new price of the call option if the stock price increases by 18 you can use the options Delta Delta measures how much the option price is expected to change for a 1 change in the underlying stock price In this case the Delta of the option is 071 which means that for every 1 increase in the stock price the option price is expected to increase by 071 Given Current option price C0 321 Current stock price S0 65 Delta 071 Increase in stock price S 18 To estimate the new option price C1 after the stock price increase ...
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Introduction to Corporate Finance What Companies Do
Authors: John Graham, Scott Smart
3rd edition
9781111532611, 1111222282, 1111532613, 978-1111222284
