What this option delta interview question tests
This is an easy option-theory question that tests whether you understand how delta behaves as an option approaches expiration. It's a common warm-up or sanity-check question at trading desks and hedge funds, often used to ensure a candidate has internalized the relationship between time-to-expiry, moneyness, and the option's sensitivity to stock price moves.
To answer problems like this, you need to reason about the limiting behaviour of delta as time decay approaches zero. The question asks you to think intuitively about what happens to an option's price sensitivity when there is almost no time left for the stock to move, and when the option is precisely at-the-money. Strong candidates connect this to the shape of the payoff diagram at expiration and avoid over-relying on the Black–Scholes formula.
- Delta as hedge ratio and directional sensitivity
- How delta varies with moneyness (in-the-money, at-the-money, out-of-the-money)
- Time decay and the behaviour of Greeks near expiration
- Intrinsic vs. extrinsic value