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FIN 401- Final Exam Notecard

FIN 401- Final Exam Notecard - Ch.15)Derivatives-$ derive...

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Unformatted text preview: Ch.15)Derivatives-$ derive from other securities. Contingent claims-when specified outcomes occur.Call options- Right, not obligation,to buy asset at strike price until it matures.Premium- the purchase price of option. Optionholder-decides if xchange happen OptionWrite r= forced to do what the owner decides to do,gets Premium)when option is written . In the money-when strike $ is below the assets value bc purchase at the strike $ makes $$.Put Option- Right, not obligation to sell an asset.In the money when strike $ is above the asset’s value bc sale at the strike price makes $$. USA opts can be exercised at any time up to the expire date,Euro only @ expire.Cover Call-long stock,short call.Straddle- buy a call+put, same strike,expiration bc trader c moves, but sure up/down.Call Butterfly- buy 1 call low-strike, high-strike, 2 in middle bc stock wont go up/down by much.Payoff of call- Max[0, S-X], call more val as $ up, less val as strike up (opp 4 put). Expiration-Call-put more val as...
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