673_10_Options - Options NBA 673 February 23, 2006 1...

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1 NBA 673 February 23, 2006 Options
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2 Options Markets Options are derivatives, their value depends on the value of another underlying instrument. Historically, people have been mostly been interested in options on commodities. Options are traded OTC and on exchanges (since April 1973, on the CBOE). Options trading on exchanges are standardized. Only a relatively small set of delivery dates and strike prices are available at any time. Option contracts are written in multiples (“blocks”) of 100 shares of the underlying stock. Delivery is usually not requested; payoffs are settled in cash. If one wishes to get out of an option contract, this can be done at any time by closing out the position (i.e. if one is long in instrument X, then the same instrument can be shorted).
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Market Data The cost of buying a call or a put is typically much less than the price of the underlying asset. This makes it easy to achieve leveraged positions. This can be dangerous if prices move against you. Note the set of available
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This note was uploaded on 09/28/2008 for the course NBA 6730 taught by Professor Janosi,tibor during the Spring '06 term at Cornell University (Engineering School).

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673_10_Options - Options NBA 673 February 23, 2006 1...

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