This preview shows page 1. Sign up to view the full content.
Unformatted text preview: vidend income, companies should pay the lowest
dividend possible. Download free ebooks at bookboon.com
73 Corporate Finance Options 9. Options
An option is a contractual agreement that gives the buyer the right but not the obligation to buy or sell a
financial asset on or before a specified date. However, the seller of the option is obliged to follow the
Right to buy an financial asset at a specified exercise price (strike price) on or before
the exercise date
Right to sell an financial asset at a specified exercise price on or before the exercise
Exercise price (Striking price)
The price at which you buy or sell the security
The last date on which the option can be exercised The rights and obligations of the buyer and seller of call and put options are summarized below.
Buyer Seller Call option Right to buy asset Obligation to sell asset if option is exercised Put option Right to sell asset Obligation to buy asset if option is exercised The decision to buy a call option is referred to as taking a long position,...
View Full Document
- Spring '12