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Unformatted text preview: Chapter 20 Financial Options 20.1. Definitions: a. Option: An option is a contract that gives one party the right, but not the obligation, to buy or sell an asset at some point in the future. b. Expiration date: The last date on which the holder still has the right to exercise the option. If the option is American, the right can be exercised until the exercise date; if it is European, the option can be exercised only on the exercise date. c. Strike price: the price at which the holder of the option has the right to buy or sell the asset. d. Call: An option that gives its holder the right to buy an asset. e. Put: An option that gives its holder the right to sell an asset. 20.2. European options can be exercised only on the exercise date, while American options can be exercised on any date prior to the exercise date. Both types of options are traded in Europe and in America. 20.3. The first column is the ticker code of the option. It specifies the maturity date of the call, the strike price, and the underlying asset (in this case IBM). Last sale contains the last price at which the option was traded. Net is the net change in price of the option since the opening of the market that day. [pc appears in the net change in price when no transaction has occurred since opening.] Bid is the current price that buyers are willing to pay for the option Ask is the price at which sellers of the option are willing to sell. Vol is the number of option contracts traded so far during that day....
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This note was uploaded on 12/28/2009 for the course FEWEB CORPFIN taught by Professor Dorsman during the Spring '09 term at Vrije Universiteit Amsterdam.
- Spring '09