FIN302-Fincancial Options- Ch20,21 (exam 2)

FIN302-Fincancial Options- Ch20,21 (exam 2) - Financial...

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Financial Options Chapters 20 and 21
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Topics Covered Option Terminology What Determines Option Values? Simple Option Valuation Model A Binomial Model for Valuing Options Black-Scholes Formula
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Option Terminology Put Option Right to sell an asset at a specified exercise price on or before the exercise date. Call Option Right to buy an asset at a specified exercise price on or before the exercise date.
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Option Obligations asset buy to Obligation asset sell Right to option Put asset sell to Obligation asset buy Right to option Call Short Long
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Options Terminology Derivatives - Any financial instrument that is derived from another. (e.g. . options, warrants, futures, swaps, etc.) Option - Gives the holder the right to buy or sell a security at a specified price during a specified period of time. Call Option - The right to buy a security at a specified price within a specified time. Put Option - The right to sell a security at a specified price within a specified time. Option Premium - The price paid for the option, above the price of the underlying security. Intrinsic Value - Diff between the strike price and the stock price Time Premium - Value of option above the intrinsic value
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Options Terminology Exercise Price - (Striking Price) The price at which you buy or sell the security. Expiration Date - The last date on which the option can be exercised. American Option - Can be exercised at any time prior to and including the expiration date. European Option - Can be exercised only on the expiration date. All options “usually” act like European options because you make more money if you sell the option before expiration (vs. exercising it).
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Google Stock Selected prices for puts and calls September 2008
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Option Value The value of an option at expiration is a function of the stock price and the exercise price. Example - Option values given a exercise price of $80 0 0 0 0 10 20 Value Put 30 20 10 0 0 0 Value Call 110 100 90 80 70 $60 Price Stock
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Google Call option value (graphic) given a $430 exercise price. Share Price
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FIN302-Fincancial Options- Ch20,21 (exam 2) - Financial...

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