1
Q
What is intrinsic value?
A
The part of the option’s value that is in-the-money.
2
Q
What is time value?
A
The part of an option’s value that isn’t intrinsic. Out-of-the-money options have no intrinsic value – only time value.
3
Q
What is delta?
A
Change in option price
Delta = __________________________________
Change in underlying asset price (the higher the delta , the faster the option price moves as compared with the stock price)
4
Q
What is “delta neutral trading”?
A
Reducing risk exposure to delta by bringing the delta value close to zero – to avoid wild swings. Doesn’t mean risk-free.
