FINA 4110 Slides 9 [Mechanics of Options Markets]

FINA 4110 Slides 9 [Mechanics of Options Markets] -...

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Mechanics of Options Markets Chapter 9 1
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Types of Options z A call is an option to buy z A put is an option to sell z A European option can be exercised only at the end of its life z An American option can be exercised at any time 2
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Option Positions z Long call z Long put z Short call z Short put 3
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Long Call (Figure 9.1, Page 207) Profit from buying one European call option: option price = $5, strike price = $100. 30 20 10 0 -5 70 80 90 100 110 120 130 Profit ($) Terminal stock price ($) 4
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Short Call (Figure 9.3, page 208) Profit from writing one European call option: option price = $5, strike price = $100 -30 -20 -10 0 5 70 80 90 100 110 120 130 Profit ($) Terminal stock price ($) 5
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Long Put (Figure 9.2, page 208) Profit from buying a European put option: option price = $7, strike price = $70 30 20 10 0 -7 70 60 50 40 80 90 100 Profit ($) Terminal stock price ($) 6
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Short Put (Figure 9.4, page 209) Profit from writing a European put option: option price = $7, strike price = $70 -30 -20 -10 7 0 70 60 50 40 80 90 100 Profit ($) Terminal stock price ($) 7
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FINA 4110 Slides 9 [Mechanics of Options Markets] -...

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