Options Greeks: Delta Interpretation and Directional Sensitivity
An investor holds an equity call option with a Delta of +0.65. If the underlying stock increases in market price by $2.00, how much is the option premium theoretically expected to change, holding all other variables constant?
Delta measures the change in option premium for a $1.00 move in underlying stock. Expected Change = $2.00 stock move × +0.65 Delta = +$1.30.
Complete Analysis & Legal Rationale
Delta represents the price sensitivity of an option relative to a $1.00 change in the underlying stock price. For a call option with a delta of +0.65, a $2.00 rise in the underlying stock price increases the theoretical option price by $2.00 × 0.65 = $1.30 per share ($130 for a 100-share contract). Delta also loosely estimates the probability of expiring in-the-money (approx. 65%).
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Delta measures the change in option premium for a $1.00 move in underlying stock. Expected Change = $2.00 stock move × +0.65 Delta = +$1.30.
Fails to reflect correct options pricing/mechanics for B.
Fails to reflect correct options pricing/mechanics for C.
Fails to reflect correct options pricing/mechanics for D.
Official Standard: Delta represents the price sensitivity of an option relative to a $1.00 change in the underlying stock price. For a call option with a delta of +0.65,