medium · FRM Part 1 Valuation and Risk Models
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 absolute peak, making the position extremely sensitive to small shifts in implied volatility.
- Delta is near 1.0, meaning the option's price now moves almost exactly one-for-one alongside the underlying stock's price.
- Rho becomes the single dominant Greek here, since interest-rate sensitivity increases sharply as maturity approaches expiration.
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