The other more popular mechanism is the organized

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: h the help of a stockbroker. The other, more popular mechanism is the organized options exchanges. The dominant exchange is the Chicago Board Options Exchange (CBOE), which was established in 1973. Other exchanges on which options are traded include the American Stock Exchange, the Philadelphia Stock Exchange, and the Pacific Stock Exchange. The options traded on these exchanges are standardized and thus are considered registered securities. Each option is for 100 shares of the underlying stock. The price at which options transactions can be made is determined by the forces of supply and demand. Options Trading The most common motive for purchasing call options is the expectation that the market price of the underlying stock will rise by more than enough to cover the cost of the option and thereby allow the purchaser of the call to profit. EXAMPLE Hint Put and call options are created by individuals and other firms. The firm itself has nothing to do with the creation of these options. Convertibles and warrants, by contrast, are cr...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online