The delta of a cash-or-nothing call option is highest when the option is
A) Deep out-of-the-money.
B) At- or near-the-money.
C) Deep in-the-money.
D) 25% out-of-the-money.

Question

Quizplus · Accepted Answer

The delta of a cash-or-nothing call option is highest when the option is at- or near-the-money. This is because at this point, the option has the highest chance of ending in-the-money, which means the payout will be made. Deep out-of-the-money options have a low chance of ending in-the-money, while deep in-the-money options have already fully paid out their maximum amount, so they have less sensitivity to changes in the underlying asset price. The option being 25% out-of-the-money is not a relevant factor in determining delta.

The Delta of a Cash-Or-Nothing Call Option Is Highest When