Management and Organizational Studies 1023A/B Lecture Notes - Lecture 9: Call Option, Option Style, Forward Market

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 1023A/B
• Professor: Barry Hawn

Document Summary

Derivatives: financial derivative securities: derive all or part of their value from another (underlying) security, why trade these indirect claims, expand investment opportunities, lower cost. Increase leverage: options are created by investors, sold to other investors, the person that holds the option is the person that bought the option. If you own the shares and sell the option, you have a covered position. If shares increase to . 00 you will exercise option - buy shares at . 00 and sell for. . 00 (you earned . 00 profit on option contract) If shares decrease to . 00 you will exercise option buy shares at . 00 and sell for $ 10. 00 ( you earned . 00 profit on option contract) In-the-money options have a positive cash flow if exercised immediately. Call options: stock price (s) > exercise price (e: put options: s < e, out-of-the-money options should not be exercised immediately, call options: s < e, put options: s > e.