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Derivatives

Derivatives. Lecture 2. Option Overview. Options. Option - Gives the holder the right to buy or sell a security at a specified price during a specified period of time. Call Option - The right to buy a security at a specified price within a specified time.

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Derivatives

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  1. Derivatives Lecture 2

  2. Option Overview

  3. Options • Option - Gives the holder the right to buy or sell a security at a specified price during a specified period of time. • Call Option - The right to buy a security at a specified price within a specified time. • Put Option - The right to sell a security at a specified price within a specified time. • Option Premium - The price paid for the option, above the price of the underlying security. • Intrinsic Value - Diff between the strike price and the stock price • Time Premium - Value of option above the intrinsic value • Exercise Price - (Striking Price) The price at which you buy or sell the security. • Expiration Date - The last date on which the option can be exercised.

  4. Option Value Price 0 30 60 90 (expiration) Time (days)

  5. Option Contract Ends by … • Expiration • Exercise • Sales • American option • European option

  6. Options Intrinsic Value = P - E Premium = Option price Time Premium = O + E – P Warrants Convertible Bonds

  7. Charting Options Profit Loss Asset Price

  8. Charting Options – Long Call Profit Loss Asset Price

  9. Charting Options – Short Call Profit Loss Asset Price

  10. Charting Options – Long Put Profit Loss Asset Price

  11. Charting Options – Short Put Profit Loss Asset Price

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