AFM391 Chapter Notes - Chapter 14: Underlying, Financial Instrument, Call Option
Document Summary
Derivative: a financial instrument that is derived from some other underlying quantity. Underlying quantity: the value of an asset, an index value, or an event that helps determine the value of a derivative. Option: a derivative contract that gives the holder the right, but not the obligation, to buy or sell an underlying financial instrument at a specified price. Call option: an option that gives the owner a right to buy. Put option: an option that gives the owner the right to sell. Out-of-the-money: when the value of the underlying instrument in an option contract is unfavourable to the holder executing the option compared with letting the option expire. In-the-money: when the value of the underlying instrument in an option contract is favourable to the holder executing the option compared with letting the option expire. Intrinsic value of an option: the difference between the market price of the underlying security and the strike price.