COMM 122 Midterm: Finance-Notes-Post-Midterm (2)
17 Jan 2017
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Options: contract that gives the right not the obligation to buy or sell a security (stock) at a predetermined price - on or before a given date. Two main kinds: call option to buy; put option to sell. Buyer will only exercise the option if it is advantageous for them to do so. O exercising the option: buy or sell the underlying asset (stock) via the option contract. O strike/exercise price: fixed price at which the option buyer can buy/sell the asset. O expiration date: maturity date of the option: american option: the option may be exercised at any time up to an including the expiration date, european option: option can only be exercised on the expiration date, in-the-money. Put: market price < exercise price: out-of-the-money. Value: the difference between market price at time, t, and price of expiration. When market price > exercise price = in-the-money (you will profit)
