CFA Level I · CFA Level I Exam · Pricing and Valuation of Options
An analyst compares the delta of a European call option and a European put option on the same non-dividend-paying stock with identical strike and expiration. Which statement about their deltas is most accurate?
Call delta lies between 0 and 1, and put delta lies between -1 and 0. Calls rise in value as the underlying rises, while puts fall in value, so the put's sensitivity to the underlying price is negative.
- ACall delta is between 0 and 1, and put delta is between -1 and 0.Correct
- BCall delta is between -1 and 0, and put delta is between 0 and 1.
- CCall and put deltas are both between 0 and 1.
Explanation
A call gains value when the underlying rises, so its delta lies between 0 and 1. A put loses value when the underlying rises, so its delta lies between -1 and 0. The second option reverses the signs, and the third ignores the inverse relation of put value to the underlying.
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