RSM435H1 Lecture Notes - Lecture 5: Nyse Euronext, Nasdaq, Inc., Option Style
Document Summary
Gives holder the right but not obligation to do something. Usual practice: ignore time value of money when calculating profit. Should always be exercised if stock price above strike price. Exercise by expiration date or maturity date at exercise price or strike price. One contract gives right to buy/sell 100 shares. Designed to replicate particular market, often by trading underlying benchmark. One contract buys/sells 10,000 units of foreign currency for us dollars. One contract to buy 100 times the index at specified strike price. Call contract on index with strike price of 980, exercised when index is 992. Typically expires right before expiration of trading in underlying futures contract. Gain for call option holder is excess of futures price over strike price. Gain for put option holder is excess of strike price over futures prices. Trading from 8:30 am to 3:00 pm chicago time until expiration date. Trade on a january, february, or march cycle.
