(One of the nice things about having several blog contributors is you don’t know what the next entry will be. Dan wants you to take a self-quiz, with the answers explained next week. You may find a few of these questions difficult, but Dan isn’t a tough grader! Enjoy)!
Do you know your Greeks?
Today I am going to give a quiz on the most important Greek, Deltas. Understanding and managing this important Greek is crucial to your options trading. Mid next week I will go over the quiz and go over each answer in detail. Please do this quiz without any books or software if you can.
#1 Delta refers to a) time risk b) price risk c) volatility risk
#2 When you buy a call option, the delta decreases as the stock price goes up? T or F
#3 The delta of a January at-the –money call is higher than a November at-the-money call T or F?
#4 You buy the November 175-180 call debit spread for $3.00. The delta of the 175’s is 63 and the delta for the 180’s is 53. Approximately, what will be the price of the spread if the stocks goes up $1.00?
#5 Does an increase in implied volatility affect a 50 delta or 75 delta option more?
#6 What is the delta of 100 shares of stock?
#7 What greek determines how deltas will change over time?
#8 Do at-the-money deltas increase or decrease as you get closer to expiration? How about out-of-the money options?
#9 Will the deltas of an at-the-money calendar increase or decrease as you get closer to expiation?
#10 Why are the position deltas of an Iron Butterfly always short when you start?
Good luck! Dan Sheridan firstname.lastname@example.org