Which of the following statements is true? Consider options written on a non-dividend-paying stock.
A) All European and American options have positive gamma.
B) European options and American calls have positive gamma, but American puts may have negative gamma.
C) European options have positive gamma, but American options may have positive or negative gamma.
D) Gamma may be positive or negative for both American and European options.

Question

Quizplus · Accepted Answer

Gamma measures the rate of change of an option's delta relative to the price of the underlying asset. Both European and American options, regardless of being calls or puts, have positive gamma because as the price of the underlying asset increases, the delta of calls increases (approaching 1) and the delta of puts decreases (approaching 0), reflecting a positive rate of change.

Which of the Following Statements Is True? Consider Options Written