Aputoptionis inthemoney ifspotratestrikeprice

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Unformatted text preview: rice, out of the money if current price < strike price. Introducing Call Options Introducing Call Options Source: http://www.investopedia.com/video/ Put Options A put option grants the holder the right to sell a specific stock at a specific price (the strike price) within a specific period of time. A put option is in the money if spot rate < strike price, at the money if spot rate = strike price, out of the money if spot rate > strike price. Introducing Put Options Introducing Put Options Source: http://www.investopedia.com/video/ European versus American Options European versus American Options Option Terminology Expiration date European: can be exercised only at expiration American: exercised any time before expiration Options Options Example: Suppose you own a call option with an exercise (strike) price of $30. If the stock price is $40 (in­the­money): Your option has an intrinsic value of $10 You have the right to buy at $30, and you can exercise and then sell for $40. If the stock price is $20 (out­of­the­money): Your option has an intrinsic value of zero You would not exercise your right to buy something for $30 that you can buy for $20! Options Options Example: Suppose you own a put option with an exercise (strike) price of $30. If the stock price is $20 (in­the­money): Your option has an intrinsic value of $10 You have the right to sell at $30, so you can buy the stock at $20 and then exercise and sell for $30 If the stock price is $40 (out­of­the­money): Your option has no intrinsic value You would not exercise your right to sell something for $30 that you can sell for $40! Understanding In­the­money Options Understanding In­the­money Options Source: http://www.investopedia.com/video/ Understanding Out­the­money Options Understanding Out­the­money Options Source: http://www.investopedia.com/video/ Options Options Example: Suppose that you buy 100 units of a January $30 call option on Microsoft. The option premium is $0.95 per share....
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