428_lecture17_Options_A_S09

428_lecture17_Options_A_S09 - Lecture 17 Option Basics(part...

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Lecture 17: Option Basics (part I) AEM 428 Manny Dong Materials from Smart et al. Ch. 18
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Problem set 5 Pick up today or download from blackboard. You need to use the on-line stock screen system www.professorng.com/stockscreen/ username: David Password: Intrinsic
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Investors’ Sentiment: Why Both mid-horizon momentum and long- horizon value effects are elements of a single process by which information is incorporated in price Sentiment indicators, such as trading volume, help us to understand the transitional dynamics between long-term reversals and short-term momentum Think in terms of both value and momentum indicators when evaluating stocks
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+ + = + + + + = 0 1 ) 1 ( ) ( ) ( k k k t t k t t t Y E D E P φ ρ φ Investors’ Sentiment Why do we care about Investors’ sentiment? Sentiment affects valuation and stock price. What do we need to do? Think in terms of both value and momentum indicators when evaluating stocks. Pay attention to Sentiment indicators, such as trading volume, help us to understand the transitional dynamics between long-term reversals and short-term momentum
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Economic Benefits Provided by Options Derivative securities are instruments that derive  their value from the value of other assets. Derivatives include options, futures, and swaps. 
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Options Vocabulary Options: Allow investors to buy or sell an security (asset) at a fixed price during a given period time (or at a specified time).
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Options Vocabulary Call option   Gives the holder the right to purchase an  asset at a specified price on or before a  certain date Put option   Gives the holder the right to sell as asset  at a specified price on or before a certain  date Option Types: Stock price (S):  The current market price of the stock  Option price (premium):  the price of purchase option contract  ( call or put ) Strike price  or  exercise price (X) : the price specified for purchase or sale in  an option contract Expiration date (maturity):  The date at which the exercise right expires
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