Options Trading Options Greeks and Risk Management 1 — Questions and Answers
Question 1: Which Greek measures the rate of change of an option's price relative to a $1 move in the underlying asset?
- Delta (Correct answer)
- Gamma
- Theta
- Vega
Correct answer: Delta
Delta measures how much an option's price changes for every $1 change in the underlying asset's price.
Question 2: What does a negative theta value indicate for an options position?
- The position loses value as time passes (Correct answer)
- The position gains value as time passes
- The position is unaffected by time
- The position has high volatility exposure
Correct answer: The position loses value as time passes
Negative theta means the option loses value with each passing day due to time decay.
Question 3: Which Greek measures an option's sensitivity to changes in implied volatility?
- Vega (Correct answer)
- Delta
- Rho
- Gamma
Correct answer: Vega
Vega measures the change in an option's price for a 1% change in implied volatility.
Question 4: What does Gamma measure in options trading?
- The rate of change of Delta (Correct answer)
- The rate of change of Vega
- The sensitivity to interest rates
- The time decay per day
Correct answer: The rate of change of Delta
Gamma measures the rate at which Delta changes for every $1 move in the underlying asset.
Question 5: Which Greek measures an option's sensitivity to interest rate changes?
- Rho (Correct answer)
- Vega
- Theta
- Gamma
Correct answer: Rho
Rho measures the change in an option's price for a 1% change in the risk-free interest rate.
Question 6: A delta-neutral portfolio has a total delta of approximately:
- Zero (Correct answer)
- One
- Negative one
- Fifty
Correct answer: Zero
A delta-neutral portfolio has a total delta of zero, meaning it is theoretically unaffected by small moves in the underlying asset.
Options Trading Options Greeks and Risk Management 1
Which Greek measures the rate of change of an option's price relative to a $1 move in the underlying asset?