The delta of a call option is 0.6. The current price of the call is $5 and that of a put at the same strike is $4, and the stock is at $100. What is the approximate price of the put if the stock price increases to $100.50?
A) $3.60
B) $3.80
C) $4.20
D) $4.50

Question

Quizplus · Accepted Answer

Since the delta of the call is 0.6, the delta of the put is approximately -0.4 (since a call option and a put option at the same strike price should have deltas that add up to zero).

The increase in stock price from $100 to $100.50 is $0.50, which we can consider as a small move. Using the put-call parity formula, we can say that:

Call price - Put price = Stock price - Strike price / (1 + Risk-free rate)^Time to expiration

Substituting the given values, we get:

$5 - Put price = ($100.50 - $100) / (1 + r)^T

Solving for Put price, we get:

Put price = $3.80 (approx)

Therefore, the answer is B.

The Delta of a Call Option Is 0