CFA Level 2 Exam 2025 – 400 Free Practice Questions to Pass the Test

The measure that reflects an option's sensitivity to changes in the underlying stock price is known as Delta. Delta quantifies how much the price of an option is expected to change for a small change in the price of the underlying asset. Specifically, it ranges from 0 to 1 for calls and -1 to 0 for puts, illustrating the relationship between the underlying price movement and the option's value.

For instance, a Delta of 0.5 implies that for every $1 increase in the underlying stock price, the option's price is expected to increase by $0.50. This relationship makes Delta a critical tool for traders and investors when assessing and managing the risks associated with options portfolios.

The other Greeks mentioned, such as Vega, Gamma, and Rho, measure different sensitivities. Vega indicates how much an option's price changes in relation to a change in the volatility of the underlying asset. Gamma measures the rate of change of Delta concerning changes in the underlying asset's price, and Rho assesses the sensitivity of the option's price to a change in interest rates. Each of these Greeks serves a distinct purpose in options pricing and risk management but is not focused specifically on the price sensitivity to changes in the underlying stock price as Delta does