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lecture5 (1) - Lecture 5: Properties of Stock Options...

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Lecture 5: Properties of Stock Options Steven Skiena Department of Computer Science State University of New York Stony Brook, NY 11794–4400 http://www.cs.sunysb.edu/ skiena
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Types of Options American options can be exercised anytime prior to the expiration date European options can only be executed on the expiration date. Which are more valuable, American or European options? Most exchange-traded options are American, but the value of European options is easier to determine. Employee stock options are used to aid in recruitment and retention of employees. Making them exchange tradeable (as Google has done) makes them more valuable.
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Suppose you own an unexpired call option to buy a stock for $100. What is your option worth if the stock is selling for $110? At least $10. It is better to own cash and an option to buy at the current price than to own the shares! What if the stock is selling for $90? The value of an option
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This note was uploaded on 01/02/2012 for the course FINANCE 347 taught by Professor Bayou during the Fall '11 term at NYU.

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lecture5 (1) - Lecture 5: Properties of Stock Options...

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