theory & practice of financial optionsnew

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1、Theory&PracticeofFinancialOptions1TypesofOptions•Acallisanoptiontobuy•Aputisanoptiontosell•AEuropeanoptioncanbeexercisedonlyattheendofitslife•AnAmericanoptioncanbeexercisedatanytime2AssetsUnderlyingExchange-TradedOptionsPage151-152•Stocks•ForeignCurrency•StockIndices•Futures3SpecificationofExcha

2、nge-TradedOptions•Expirationdate•Strikeprice•EuropeanorAmerican•CallorPut(optionclass)4TerminologyMoneyness:–At-the-moneyoption–In-the-moneyoption–Out-of-the-moneyoption5Terminology(continued)•Optionclass•Optionseries•Intrinsicvalue•Timevalue6Dividends&StockSplits(Page154-155)•SupposeyouownNopti

3、onswithastrikepriceofK:–Noadjustmentsaremadetotheoptiontermsforcashdividends–Whenthereisann-for-mstocksplit,•thestrikepriceisreducedtomK/n•theno.ofoptionsisincreasedtonN/m–Stockdividendsarehandledinamannersimilartostocksplits7Dividends&StockSplits(continued)•Consideracalloptiontobuy100sharesfor$

4、20/share•Howshouldtermsbeadjusted:–fora2-for-1stocksplit?–fora5%stockdividend?8MarketMakers•Mostexchangesusemarketmakerstofacilitateoptionstrading•Amarketmakerquotesbothbidandaskpriceswhenrequested•Themarketmakerdoesnotknowwhethertheindividualrequestingthequoteswantstobuyorsell9Margins(Page158-1

5、59)•Marginsarerequiredwhenoptionsaresold•Whenanakedoptioniswrittenthemarginisthegreaterof:1Atotalof100%oftheproceedsofthesaleplus20%oftheunderlyingsharepricelesstheamount(ifany)bywhichtheoptionisoutofthemoney2Atotalof100%oftheproceedsofthesaleplus10%oftheunderlyingshareprice•Forothertradingstrat

6、egiestherearespecialrules10Warrants•Warrantsareoptionsthatareissued(orwritten)byacorporationorafinancialinstitution•Thenumberofwarrantsoutstandingisdeterminedbythesizeoftheoriginalissueandchangesonlywhentheyareexercisedorwhentheyexpire11Warrants(continued)•Warrantsaretradedinthesamewayasstocks•T

7、heissuersettlesupwiththeholderwhenawarrantisexercised•Whencallwarrantsareissuedbyacorporationonitsownstock,exercisewillleadtonewtreasurystockbeingissued12ExecutiveStockOptions•Optionissuedbyacompanytoexecutives•Whentheoption