FIN 4504 Lecture Notes - Lecture 24: Straddle, Call Option, Preferred Stock
FIN 4504
Lecture 23
Options Market
• More Option Strategis
- Short straddle
> steps to create:
- sell call
- sell put at same strike price
- Long straddle
> steps to create:
- buy call
- buy put at lower strike price
- Short Straddle (with plateau)
> Steps to create:
- Sell call
- Sell put at lower strike price
- Butterfly Spread
> Steps to create:
- Sell 2 calls with same strike price: X
- Buy 1 call at a lower strike price
than X
- Buy 1 call at a higher strike price
than X
- Calls that are bought should be
equidistant from calls sold
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Sell 2 calls with same strike price: x. Buy 1 call at a lower strike price than x. Buy 1 call at a higher strike price than x. Calls that are bought should be equidistant from calls sold: option-like securities. Financial instruments that have features that gi(cid:448)e the(cid:373) a(cid:374) (cid:862)optio(cid:374)(cid:863) The issuer has the (cid:862)optio(cid:374)(cid:863) to (cid:271)uy (cid:271)o(cid:374)ds (cid:271)a(cid:272)k from the bondholder at some time in the future at a specified call price. Bondholder receives a higher coupon rate as a (cid:862)pre(cid:373)iu(cid:373)(cid:863) for the optio(cid:374) that the issuer has: convertible securities. Gives the holder the right to exchange each bond or share of preferred stock for a fixed number of shares of common stock. Example: a bond with a conversion ratio of 20. > holder has the (cid:862)optio(cid:374)(cid:863) to (cid:272)o(cid:374)(cid:448)ert o(cid:374)e bond of par value ,000 into 20 shares of common stock.