A:

Delta measures the sensitivity of an option relative to the underlying asset. It measures the rate of change in the price of an option with respect to a price change in the underlying asset. Delta tells an investor about the relationship between a change in the option price with respect to a change in its underlying asset price. For example, an option with a delta of 0.9 moves 90 cents for every \$1 move in the underlying stock.

The value of delta is affected by time decay and implied volatility. As the time to expiration of an option decreases, the delta of out-of-the-money options decreases, while the delta of in-the-money options increases. As implied volatility rises, investors believe the underlying asset price will have a greater change in price, which will change the value of delta. Generally, an increase in implied volatility causes delta to move toward 0.5, which means an option moves 50 cents for every \$1 move in the underlying asset.

As a call option gets deep in the money and closer to expiration, the value of delta gets closer to 1. As a put option gets deeper in the money and closer to expiration, the value of delta gets closer to -1.

A long stock position has a delta of 1, while a short stock position has a delta of -1. Since the delta of a long stock position is bounded by 0 and 1, an option cannot exceed that value. On the other hand, the delta of a short stock position is bounded by 0 and -1, so an option cannot be lower than that value.

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