ch14_Options Markets

ch14_Options Markets - Chapter14 OptionsMarkets

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Financial Markets and Institutions Chapter 14 Options Markets
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Financial Markets and Institutions Background on Options call option  grants the owner the right to  purchase a specified financial instrument for a  specified price ( exercise  or  strike price ) within  a specified period of time Grants the right, but not the obligation, to purchase  the specified investment The  writer  of a call option is obligated to provide the  instrument at the price specified by the option contract  if the owner exercises the option
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Financial Markets and Institutions Background on Options(Cont’d) A call option is: In the money  when the market price of the  underlying security exceeds the strike price At the money  when the market price is equal  to the strike price Out of the money  when the market price is  below the strike price
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Financial Markets and Institutions Background on Options (cont’d) put option  grants the owner the right to sell a  specified financial instrument for a specified  price within a specified period of time Grants the right, but not the obligation, to sell the  specified investment A put option is: In the money when the market price of the underlying  security is below the strike price At the money when the market price is equal to the strike  price Out of the money when the market price is above the strike  price
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Financial Markets and Institutions Background on Options (cont’d) Call and put options specify 100 shares for  stocks Premiums paid for call and put options are  determined through open outcry on the  exchange floor Participants can close out their option positions  by taking an offsetting position The gain or loss is determined by the premium paid  when purchasing the option and the premium  received when selling the option
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Financial Markets and Institutions Background on Options (cont’d) American-style  options can be  exercised at any time prior to expiration European-style  options can be  exercise only just before expiration
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Financial Markets and Institutions Background on Options (cont’d) Markets used to trade options The CBOE: Options are also traded on the AMEX,  Philadelphia Stock Exchange, Pacific Stock  Exchange, and the International Securities  Exchange
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Financial Markets and Institutions Background on Options (cont’d) Types of orders Market order   Limit order Online trading Many online brokerage firms, like E*Trade and  Datek, facilitate options orders
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Financial Markets and Institutions Background on Options (cont’d) Stock option quotations Options with higher exercise prices have 
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This document was uploaded on 08/05/2011.

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ch14_Options Markets - Chapter14 OptionsMarkets

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