-ve Delta

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zmadbak

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A negative delta indicates that the stock price and the call option are moving in opposite directions, is that correct or not?
as delta = (c1 - c0) / (s1 - s0)
this means if the answer is -ve, that s0 is larger than s1 and c1 is larger than c0
or c0 is larger than c1 and s1 is larger than s0.
Am i totatly wrong??
 
Thanks a lot sir.
in one of the mock exams, the question was which of the statements is most likely correct
1. a smaller gamma limits the effectiveness of delta hedging.
2. a negative delta indicates that the call option price and the stock price will move in opposite directions
3. a larger gamma means that there is more uncertainty as to whether the call option will expire out of the money.
What would you answer?
 
1. A smaller gamma means that delta will change less, requiring you to buy or sell fewer options to maintain a delta hedge. This is a good thing, not a bad thing, so this isn’t the correct answer.
2. A negative delta indicates that the option price and the stock price will move in opposite directions, but that would make the option a put (most likely), not a call. If they didn’t have the word “call” in this answer, it’d clearly be correct; including “call” makes it questionable at best.
3. A larger gamma means that there is a greater change in delta when the price of the stock changes, and this occurs primarily when the price is near the money. A near-the-money option has the greatest uncertainty whether it will expire in the money or out of the money, so this the correct answer.
I’d answer 3.
 
I’m glad that it was; you’re quite welcome.
(For what it’s worth: “a lot” is two words, not one. )
 
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