1. Which of the following most accurately describes the sensitivity of the call option's delta to changes in the underlying asset’s price? The sensitivity to changes in the price of the underlying is the greatest when the call option is:

A. at the money.

B. out of the money.

C. in the money.

D. far from expiration.

2. In a one period binomial tree option pricing model, if a European put option is currently priced above its theoretical value according to the binomial pricing model, the trading strategy to realize an arbitrage profit from a delta neutral portfolio is to

A. short the put at its current price, take a short position in the underlying stock proportional to the delta of the put option and borrow a loan at the risk-free interest rate.

B. purchase the put at its current price, take a short position in the underlying stock proportional to the delta of the put option and invest the proceeds in bonds that earns the risk-free interest rate.

C. purchase the put at its current price, take a long position in the underlying stock proportional to the delta of the put option and to finance purchase with borrowed loan at the risk-free interest rate.

D. short the put at its current price, take a short position in the underlying stock proportional to the delta of the put option and invest in the risk-free bonds.