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Q.8 characteristics of options
Transcript
Q.8 Characteristics of options
SUBTITLE
Options
Risk management instruments
Speculating instruments
Non-linear deliverative
Traded at exchanges/clearing houses
Option contracts are not protected against dividents
Put Options
The right to sell at a fixed price
Hedge against share price fall
Put Options
Value diagrams
Profit diagrams
Call options
The right to buy at a fixed (excercise) price
Call options
Value diagram
Profit diagram
Option contract
Premium (that you pay as a buyer)
Excercise price for a specific security (that you get an option use)
Exercise price = strike price
"In the money"
Means that your option is worth exercising
"In the money"
Long position
An obligation to buy in the future
Long position
Short position
Obligation to sell in the future
Short position
European Options
Exercise at maturity date only
European Options
American Options
Exercise any time until the maturity date
more valuable
American Options
Option strategies
Downside protection
Straddle
Stradle = Put + Call
Straddle
Purchased straddle
Sold straddle
Butterfly
Call Put Parity
Underlyin Asset + Put - Call = Bond