Options Trading Options Greeks and Risk Management 1

Question 1

Which Greek measures the rate of change of an option's price relative to a $1 move in the underlying asset?

Accepted Answer

Delta

Answer

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?

Accepted Answer

The position loses value as time passes

Answer

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?

Accepted Answer

Vega

Answer

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?

Accepted Answer

The rate of change of Delta

Answer

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?

Accepted Answer

Rho

Answer

Rho measures the change in an option's price for a 1% change in the risk-free interest rate.

Options Trading Practice Test