How Moneyness and Short Maturity Shape Option Price Sensitivity

Summary

The example asks how a one-dollar stock-price decline is likely to affect call and put prices when the stock is well above the shared strike and only a few days remain until expiration. The call is deep in the money, so its price moves almost dollar for dollar with the underlying stock. The put is deep out of the money, so although its value rises as the stock falls, the increase is expected to be small while the option remains far from exercise value.

The answer uses payoff intuition and the short time remaining to select the choice with a near-dollar call decline and a small put increase. This is a qualitative multiple-choice explanation, not an option-pricing calculation. Actual sensitivities depend on volatility, rates, dividends, and how close the options are to the strike; the given reasoning is most useful for the stated deep-moneyness, near-expiry setup.

Key ideas

• A deep in-the-money call close to expiry can move nearly one-for-one with the stock.
• A deep out-of-the-money put may gain little from a small stock decline when expiry is near.
• Moneyness and time remaining are central to interpreting the options' likely price responses.
• The response is qualitative and does not calculate delta or account for other pricing inputs.

Tags

# What is more likely effect to call and put prices, respectively, if the stock price decreases by$1?


# What is more likely effect to call and put prices, respectively, if the stock price decreases by$1?












The current stock price is \$80.Call ,and ,put, options, with ,exercise ,prices, of $50 and 3 days to maturity are currently trading.

What is more likely effect to call and put prices, respectively, if the stock price decreases by \$1?

No Calculation. Hint: sketch indicative payoff and price graphs to observe the price points.

A. Decrease by \$0.94.Increase by \$0.08

B. Decrease by \$0.76.Increase by \$0.96

C. Decrease by \$0.07. Increase by \$0.89

## Answer by Neeraj (score 2)

https://quant.stackexchange.com/a/21191

In this case, call option is deep in the money while put option is deep out of money. As maturity is very near, any change in stock price would have equivalent impact on the call option price. Decline in one dollar in stock price lead to almost one dollar decline in call option price. Whereas for put, its worth would increase but put is still deep out of money (as maturity is also near). So increase in put value would be negligible.

So as per your 3 options given above only option A best fit the all possible scenario. So desire answer must be A.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.