44. Options basics.

44. Options basics. - There are European options (can be...

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

View Full Document Right Arrow Icon
University of California, Los Angeles Department of Statistics Statistics C183/C283 Instructor: Nicolas Christou Options basics An option is a contract between two investors: - Issuer (or seller), holder of a short position. He sells the option. - Holder (buyer), holder of a long position. He buys the option. Types of options: Call option: Gives the holder the right to buy an asset by a certain date for a certain price with a fee. This fee it is the price of the option or premium. Put option: Gives the holder the right to sell an asset by a certain date for a certain price with a fee. This fee it is the price of the put or premium. The date specified it is called: the expiration date or maturity date. The price specified it is called the exercise price or the strike price.
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: There are European options (can be exercised only on the expiration date) and American options (can be exercised at any time up to the expiration date). Stock options mechanics: 1. Options are normally traded in units of 100 shares. The price of the option is on a per share basis. Therefore, if the price of an option is priced at $0 . 50, the total premium for that option would be $50 (0 . 50 100 = $50.) 2. Stock options are on a January, February, or March cycle. Stocks are randomly assigned in one of these three cycles. For example, IBM is on a January cycle (options can be bought on Jan, Apr, Jul, Oct). 3. Stock options expired on the Saturday immediately following the third Friday of the expiration month....
View Full Document

Ask a homework question - tutors are online