hard · FRM Part 1
An options trader is long an at-the-money European call option that is very close to expiration.
Which of the following best describes the risks associated with the option's Greeks in this specific scenario?
- Gamma and Theta are both extremely high (in absolute terms), making the delta-hedge unstable and the time decay rapid.
- Vega is at its peak, making the position highly sensitive to changes in implied volatility.
- Delta is near 1.0, meaning the option behaves exactly like the underlying stock.
- Rho is the dominant Greek, as interest rate sensitivity increases as time to maturity decreases.
Sign up free to see the explanation and track your rank →
More FRM Part 1 practice
- According to the CAPM, which type of risk are investors compensated for bearing?
- What specific variety of liquidity risk is being described?
- How is 'Risk Capacity' distinguished from 'Risk Appetite' in a standard risk governance fr
- If a loan has a Probability of Default (PD) of 2.0%, an Exposure at Default (EAD) of $1,00
- If two portfolios have the same Sharpe ratio but one has positive skewness and the other h
- In a 'Liquidity Spiral', what is the primary channel by which market liquidity risk and fu
- In the context of the CAPM, what is the definition of 'Alpha' (α)?
- In the risk decomposition formula σ^2_i = β^2_i σ^2_M + σ^2_ε, what does σ^2_ε represent?