However the seller of the option is obliged to follow

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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 buyer's decision. Call option Right to buy an financial asset at a specified exercise price (strike price) on or before the exercise date Put option Right to sell an financial asset at a specified exercise price on or before the exercise date 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 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,...
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