8006 Exam Dumps | For a deep in-the-money option:

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PRMIA.8006.v2021-04-25.q101
Question 60

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Question 60/101

For a deep in-the-money option:

A. Delta approaches 1 and gamma approaches 1

B. Delta approaches 1 and gamma approaches 0

C. Delta approaches 0 and gamma approaches 1

D. Delta approaches 1 and gamma approaches

Correct Answer: B

Explanation
For a deep in the money option, the option value changes in line with the value of the underlying because at this point the option is effectively behaving like the underlying. Therefore its delta is the same as the delta of the underlying, ie 1. In the same way, its gamma will be the same as the gamma of the underlying, which is 0.
Therefore Choice 'b' is the correct answer.

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