Mark Washington, CFA, is an analyst with BIC. One year ago, BIC analysts predicted that the U.S. equity market would most likely experience a slight downturn and suggested delta-hedging the BIC portfolio. As predicted, the U.S. equity markets did indeed fall, but BICs portfolio performance was disappointing, lagging its peer group by nearly 10%. Washington is reviewing the options strategy to determine why the hedged portfolio did not perform as expected.

Required:

After discussing the concept of a delta-neutral portfolio, Washington determines that he needs to further explain the concept of delta. He draws the value of an option as a function of the underlying stock price. In such a diagram, the options delta is the:

a. Slope in the option price diagram

b. curvature of the option price graph

c. level of the option price