options - Options An option contract conveys the right (but...

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Options An option contract conveys the right (but not the obligation) to buy or sell an underlying asset at a specified price (known as the exercise price or the strike price) within a specified period of time (the life of the option) A call option conveys the right to buy; while a put option conveys the right to sell American V/s European options
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Intrinsic value of the option If the current price of the underlying asset exceeds the exercise price of the call option, the option is said to be in-the-money If the current price of the underlying asset is below the exercise price of a put option, the option is said to be in- the-money
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Call option payoff -2 0 2 4 6 8 10 12 14 16 0 5 10 15 20 25 30 35 Terminal Stock price (ST) Option payoff Series1 Exercise price of call option (X) = 15
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Put option payoff -2 0 2 4 6 8 10 12 14 16 0 5 10 15 20 25 30 35 Terminal stock value(ST) Option payoff Exercise price of put option (X) = 15
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Option Payoffs at option expiration Call option Max(0, S T - X) Put option Max(0, X - S T )
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This note was uploaded on 09/27/2010 for the course BUSINESS 6F:111 taught by Professor Tongyao during the Spring '09 term at University of Iowa.

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options - Options An option contract conveys the right (but...

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