X0Options_intro

X0Options_intro - Introduction to options Chapters 2 and 3...

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Slide 1-1 Introduction to options Chapters 2 and 3
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Slide 1-2 Major types of publicly-traded options Stock Options (40%) Major Exchanges: CBOE, NYSE, AMEX, PHILX, PSE 500+ different underlying stocks Size: Each contract is typically on 100 shares Stock Index Options (30%) CBOE: AMEX: MMI, foreign stock market indexes, … Size: Typically 100 times index, cash settled. Options on Futures (25%) - CBOE Foreign Exchange (FX) (5%) Major Currencies: Euro, Japanese Yen, British Pound, Australian Dollar, Canadian Dollar, Swiss Franc. Major Exchange: PHLX Size varies
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Slide 1-3 Definition : The right to buy an asset in the future, at a pre- determined price. The seller of a call option is obligated to deliver the asset if option is exercised. Call options Section 2.2 Today Expiration date or at buyer’s choosing
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Slide 1-4 Terminology Strike (exercise) price: The amount paid by the option buyer for the asset if he/she decides to exercise Expiration (maturity) date: The date by which the option must be exercised or become worthless Moneyness: –I n -the-money: positive payoff if exercised immediately –A t -the-money: zero payoff if exercised immediately –O ut -of-the money: negative payoff if exercised immediately Exercise style: Specifies when the option can be exercised European options can be exercised only at expiration date
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Slide 1-5 Payoff/profit of a purchased call Payoff at expiration = max [0, spot price at expiration – strike price] Profit at expiration = Payoff – future value of option premium ($95.68) Can you draw payoff/profit diagrams for a written call?
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Slide 1-6 Payoff = - max [0, spot price at expiration – strike price] Profit = Payoff + future value of option premium Example 2.7:
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X0Options_intro - Introduction to options Chapters 2 and 3...

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