Ch20 - Option Chapter 20 Introduction Buy Long Sell Short...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Option Chapter 20
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Introduction Buy - Long Sell - Short Call – the right to buy underlying asset at ex. price Put – the right to sell underlying asset at ex. price Key Elements The underlying asset Exercise or Strike Price Premium or Price Maturity or Expiration date
Background image of page 2
American option vs European option American - the option can be exercised at any time before expiration or maturity. European - the option can only be exercised on the expiration or maturity date.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Notation Stock Price = S T Exercise Price = X Payoff to Call Holder ( S T - X) if S T >X 0 if S T < X Profit to Call Holder (Payoff - Purchase Price) Payoffs and Profits at Expiration - Calls
Background image of page 4
Payoff to Call Writer - ( S T - X) if S T >X 0 if S T < X Profit to Call Writer Payoff + Premium Payoffs and Profits at Expiration - Calls
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Stock Price 0 Call Writer Call Holder Profit Profiles for Calls
Background image of page 6
Payoff at expiration-Call Stock Price 0 C=max[0,S t -X] X
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Payoffs and Profits at Expiration - Puts Payoffs to Put Holder 0 if S T > X (X - S T ) if S T < X Profit to Put Holder Payoff - Premium
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 20

Ch20 - Option Chapter 20 Introduction Buy Long Sell Short...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online