A three-month at-the-money call option on a stock is trading at $5;the stock is trading at $50.A forward start option that comes to life in one month and has a life of three months from that point and that will be at-the-money when it comes to life is trading at $4.98.You hold a portfolio that is long the three-month call and short the forward start.The gamma of the portfolio is
A)Positive
B)Zero
C)Negative
D)Can be positive,zero,or negative.

Question

Quizplus · Accepted Answer

The long vanilla call has positive gamma but the forward start option has zero gamma.Hence,the position is long gamma.

A Three-Month At-The-Money Call Option on a Stock Is Trading