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Bus 206 final

Bus 206 Final: chapter 14

QuestionAnswer
types of options? - call options - put options
grants the owner the right to BUY a specific financial instrument for a specific price within a specific time call option
when is a call option in the money? when the market price is higher than the strike price
when is a call option out of the money? when the market price is below the strike price
grants the owner the right to SELL a specific financial instrument for a specific price at a specific time put option
when is a put option in the money? when the market price is below the strike price
when is a put option out of the money? when the market price is higher than the strike price
how do you obtain an option? a premium must be paid in addition to the price of the financial instrument
does the owner have to exercise the option? no, they can let it expire
do buyer's of futures contracts have to exercise their option? yes
how does market price influence call option premiums? the higher the market price relative to the strike price, the higher the premium
how does the stock's volatility influence the call and put option premiums? the greater the volatility, the higher the premium
how does time influence the call option and put option premium? the longer the time, the higher the premium
how does the market price influence a put option premium? the higher the market price relative to the strike price, the lower the premium
when are put options used to hedge? when portfolio managers are concerned about a temporary decline in a stock's value
agreements between two parties to transact the asset, at a specific date a price agreed upon now forward contract
standardized and traded on an organized exchange future contract
what do call options speculate? expectation of an increase in the price of the stock
what do put options speculate? expectations of a decrease in the price of the stock
difference between American options and European Options? you must wait to exercise a european option until the maturity date
Created by: devenmccormick
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