Chapter 11 - Chapter 11 Introduction to Options Markets I...

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 11: Introduction to Options Markets I. Option Contract Defined - exchange traded options offer 3 advantages; exercise price and expiration date of contract are standardized, direct link between buyers and sellers severed, transaction costs are lower than for OTC options - liquidity concern of OTC options not a big deal because most dealers use OTC options as part of an asset/liability strategy intended to hold them until expiration II. Differences Between Options and Futures Contracts - only one part is obligated to act (writer) on an option contract - the risk/reward characteristics of the two contracts are different - buyer of contract realizes a dollar-for-dollar gain when price of futures contract changes - options don’t provide symmetric risk/reward relationship; used to protect against asymmetric risk in hedging III. Risk and Return Characteristics of Options - should consider the time value of money and the interest that could have been earned when measuring the break even point IV. Pricing of Options
Image of page 1
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern