Effect of Implied Volatility on Delta

Medium Option Valuation Greeks

During a recent analysis of a vanilla European call option on Company XYZ's stock, an analyst calculated the option's Delta to be 0.65. The stock price is currently at $50, the strike price is $48, and the option is set to expire in one month.

The analyst is particularly interested in understanding how the option's Delta will change with respect to the volatility of the underlying asset. For this purpose, the analyst has been studying the Greeks associated with options to make informed trading decisions.

If the implied volatility of Company XYZ's stock increases, which of the following statements regarding the option's Delta is most accurate?

The Delta will decrease because higher volatility reduces the likelihood of a large price movement.

The Delta will remain unchanged since it is primarily a measure of the option's sensitivity to underlying price changes.

The Delta may increase because higher volatility increases the probability of the option finishing in-the-money.

Hint

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