Topic 8 - Topic8:OptionandFutures Option Optionterminology...

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Topic 8: Option and Futures Option Option terminology Put and Call options Intrinsic value and Time value Black-Scholes Model Futures Understanding futures Futures trading Users of futures
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Why Options Markets? Financial derivative securities: derive all  or part of their value from another  (underlying) security Options are created by investors, sold  to other investors Why trade these indirect claims? Expand investment opportunities, lower  cost, increase leverage
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Why trade options? Options can be used to speculate on price movements Options can be used to reduce risk exposure Options can be used to reduce transaction costs Options can be used to avoid tax exposure Options can be used to avoid market restrictions. There are restrictions on short selling that can be avoided by buying put
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Options Terminology A call option gives its owner the right  but not the obligation to buy an  underlying goods at a predetermined  price for a predetermined date A put option gives its owner the right but  not the obligation to sell an underlying  goods at a predetermined price for a  predetermined date
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Options Terminology Exercise (strike) price: “fixed price” Expiration (maturity) date: “certain date” Option premium or price: paid by buyer  to the seller to get the “right”
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Topic 8 - Topic8:OptionandFutures Option Optionterminology...

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