Which one of the following is the correct formula for approximating the change in an option's value given a small change in the value of the underlying stock?
A)Change in option value ≈ Change in stock value/Delta
B)Change in option value ≈ Change in stock value/(1 - Delta)
C)Change in option value ≈ Change in stock value/(1 + Delta)
D)Change in option value ≈ Change in stock value × (1 - Delta)
E)Change in option value ≈ Change in stock value × Delta

Question

Quizplus · Accepted Answer

The correct formula for approximating the change in an option's value given a small change in the value of the underlying stock is "Change in option value ≈ Change in stock value × Delta." Delta represents the rate of change of the option's price relative to a one-unit change in the price of the underlying asset.

Which One of the Following Is the Correct Formula for Approximating