Delta

    graph TD;
	    A[Stock Price Change ($1)] -->|+ Delta| B[Option Price Change];
	    B -->|Call Option Delta| C[Positive Delta];
	    A -->|+ Delta| D[Put Option Price Change];
	    D -->|Put Option Delta| E[Negative Delta];

## What does a Delta of 1 for a call option indicate? - [x] It indicates that for every $1 increase in the underlying asset, the call option's price increases by $1. - [ ] It means that the option is worthless. - [ ] It simply suggests that the stock is about to collapse. - [ ] There is no correlation at all. > **Explanation:** A Delta of 1 means a one-for-one correlation where the call option's price will increase by exactly $1 with a $1 increase in the underlying asset. ## For put options, what is the typical range for Delta? - [x] -1 to 0 - [ ] 0 to 1 - [ ] Greater than 1 - [ ] No range defined > **Explanation:** The Delta for put options typically ranges between -1 and 0, indicating an inverse relationship between the put option's price and the underlying asset’s price. ## How does Delta help in creating a delta-neutral position? - [ ] By balancing the number of calls with puts. - [ ] By ignoring the underlying asset completely. - [x] By combining long and short options in proportion to their deltas. - [ ] By throwing a dart at the options board. > **Explanation:** A delta-neutral position balances the total delta of long and short options to maintain a net delta of zero, protecting against price changes. ## What happens when the Delta of an option approaches 0? - [x] The option becomes less sensitive to changes in the underlying asset price. - [ ] It means you’ve won the options game! - [ ] It’s a signal to hold onto the options forever. - [ ] It indicates a stock market crash. > **Explanation:** A Delta approaching 0 implies less sensitivity to the price of the underlying, making the option behave more like a bond than a responsive instrument. ## Is a lower Delta always preferable for traders? - [ ] Yes, always, for every trade. - [x] Not necessarily; it depends on the trading strategy. - [ ] Absolutely not; it means you're far from any returns. - [ ] Yes, if you want peace and quiet. > **Explanation:** Lower Delta might be preferable in certain strategies while traders might seek higher Delta in others, depending on risk appetite and market conditions. ## When is Delta most useful? - [x] When assessing potential impacts of price changes on derivatives. - [ ] Only on rainy days. - [ ] Never, that's what financial advisors are for. - [ ] During a market panic. > **Explanation:** Delta is primarily useful in risk management and strategic planning, enabling traders to gauge the potential impact of underlying price fluctuations. ## What is a Delta Spread? - [x] An options trading strategy that establishes a delta-neutral position. - [ ] A mystical creature found only in the finance world. - [ ] A salad recipe that's gained popularity on Wall Street. - [ ] Just another name for portfolio diversification. > **Explanation:** A Delta Spread involves creating a delta-neutral position to minimize risk while trading options, often using long and short positions. ## If a trader wishes to protect their asset against downward price movements, which Delta strategy should they implement? - [ ] Increase long call options. - [x] Utilize put options, which have a negative Delta. - [ ] Invest solely in stocks. - [ ] Hope for the best without any strategy. > **Explanation:** Using put options, which typically have a negative Delta, allows traders to hedge against potential decreases in the price of underlying assets. ## How does Delta change as the market approaches an option's expiration? - [ ] It stays the same, no matter what! - [ ] It decreases dramatically. - [x] It can increase or decrease depending on the option's moneyness. - [ ] It just goes down for no reason whatsoever. > **Explanation:** As expiration approaches, Delta behavior changes based on whether the option is in, at, or out of the money, affecting overall sensitivity to price changes. ## If your option has a Delta of 0.7, how much will the option price change if the underlying stock price increases by $2? - [ ] $1 - [x] $1.40 - [ ] $2 - [ ] $0, the stock never moves. > **Explanation:** With a Delta of 0.7, a $2 increase in the stock price translates to a $1.40 increase in the option price (0.7 * $2).