Chapter_19_-_Options - Options Options Chapter 19 Charles...

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ptions Options Chapter 19 Charles P. Jones, Investments: Analysis and Management, Tenth Edition, John Wiley & Sons Prepared by G.D. Koppenhaver, Iowa State University 17 17-1
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Why Options Markets? inancial derivative securities: derive ± Financial derivative securities: derive all or part of their value from another nderlying) security (underlying) security ± Options are created by investors, sold other investors to other investors ± Why trade these indirect claims? xpand investment opportunities lower ¾ Expand investment opportunities, lower cost, increase leverage 19-2
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Options Terminology all (Put): Buyer has the right but not ± Call (Put): Buyer has the right but not the obligation to purchase (sell) a fixed uantity from (to) the seller at a fixed quantity from (to) the seller at a fixed price before a certain date ¾ Exercise (strike) price: “fixed price” ¾ Expiration (maturity) date: “certain date” ± ption premium or price: paid by buyer Opt o p e u o p ce pa d by buye to the seller to get the “right” 19-3
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How Options Work all buyer (seller) expects the price of ± Call buyer (seller) expects the price of the underlying security to increase (decrease or stay steady) ± Put buyer (seller) expects the price of the underlying security to decrease (increase or stay steady) ± At option maturity ¾ Option may expire worthless, be exercised, or be sold 19-4
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Options Trading ption exchanges are continuous ± Option exchanges are continuous primary and secondary markets hicago Board Options Exchange largest ¾ Chicago Board Options Exchange largest ± Standardized exercise dates, exercise rices, and quantities prices, and quantities ¾ Facilitates offsetting positions through Options Clearing Corporation ± OCC is guarantor, handles deliveries 19-5
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This note was uploaded on 06/02/2011 for the course FINA 3331 taught by Professor Staff during the Spring '08 term at Texas A&M University, Corpus Christi.

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Chapter_19_-_Options - Options Options Chapter 19 Charles...

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