Risk Management

Volatility good fi you have long options if you have

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Unformatted text preview: f yahoo drops a lot hen I can sell it to you) IF YOU FOUND A COMPANY, TAKE IT PUBLIC THEN SELL IT, A COLLAR IS VALUABLE Two basic kinds of options: Call options – the right, but not the obligation, to purchase the underlying asset Buy call if you think price will go up, other side of that trade is the person who is bearish about the stock (doesn’t think it will go up that much) Put options – the right, but not the obligation, to sell the underlying asset Protects around downward price movement, seller is someone who is bullish Call options are sometimes called warrants when referring to corporate common stock; employee stock options are call options Option basics: Strike price – price at which you get to buy or sell underlying asset Call option is worthless unless at expiration the price of underlying stock is over strike price (price at which you can pay to own the stock) Expiration date – time until which option can be exercised More valuable if longer Premium – price for the option (differs from strike price) Price you pay just to...
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This document was uploaded on 03/27/2014 for the course FINC 150 at Georgetown.

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