Similarly a call put option is out of the money if

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: whereas the decision to sell a call option is a short position. If the exercise price of a option is equal to the current price on the asset the option is said to be at the money. A call (put) option is in the money when the current price on the asset is above (below) the exercise price. Similarly, a call (put) option is out of the money if the current price is below (above) the exercise price. With respect to the right to exercise the option there exist two general types of options: – American call which can be exercised on or before the exercise date – European call which can only be exercised at the exercise date Download free ebooks at bookboon.com 74 Corporate Finance Options 9.1 Option value The value of an option at expiration is a function of the stock price and the exercise price. To see this consider the option value to the buyer of a call and put option with an exercise price of €18 on the Nokia stock. Stock price €15 €16 €17 €18 €19 €20 €21 Call value 0 0 0 0 1 2 3 Put value 3 2 1 0 0 0 0 If the stock p...
View Full Document

Ask a homework question - tutors are online