The situation
A call has delta 0.55 and gamma 0.04 per rupee. The stock rises ₹2. Hold volatility and time fixed.
Your task
Estimate the premium move with delta and gamma.
Reveal step-by-step solution
Set up the problem
Delta term = 0.55 × ₹2 = ₹1.10.
Work through the numbers
Gamma term ≈ 0.5 × 0.04 × 2² = ₹0.08. Total estimated rise is ₹1.18 per share.
Interpret the result
Use this as a local estimate. Reprice for large moves or changes in time and volatility.
What to remember
Check Greek units and include the one-half in the second-order price term.