A 6-Month Call Option on ABC Stock Is Priced at $2.80

question 43

Multiple Choice

A 6-month call option on ABC stock is priced at $2.80. The call option delta is .66. How will the approximate call option price be computed if the underlying stock price increases by $1?

• A)$2.80
• B)$2.80 − $.66
• C)$2.80 + $.66
• D)$2.80 × .66
• E)$2.80 × (1 + .66)

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Definitions:

Prices Rise

An economic phenomenon where the general level of prices for goods and services increases over time.

Futures Contract

An arrangement, enforceable by law, where individuals agree to trade a specified commodity or financial instrument at a previously established price, to be fulfilled at a specified time ahead.

Forward Contract

is a non-standardized contract between two parties to buy or sell an asset at a specified future date for a price agreed upon today.

Settlement Date

The date on which a trade is finalized, and the buyer must make payment and the seller must deliver the asset.