chapter11options

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1、lIntroductionslOptionsisatypeofcontractbetweentwopeoplewhereinonepersongrantstheotherpersontherighttobuyaspecificassetataspecificpricewithinaspecifictimeperiod.lThenthecontractmaygranttheotherpersontherighttosellaspecificassetataspecificpricewithinaspecific

2、timeperiod.lThepersonwhohasreceivedtheright,andthushasadecisiontomake,isknownastheoptionbuyerbecauseheorshemustpayforthisright.lThepersonwhohassoldtheright,andthusmustrespondtothebuyer’sdecision,isknownastheoptionwriter(seller).lThekeydifferencebetweensome‘

3、options”lIncentiveoptionslWarrantslPreemptiverightslConvertiblebondslTheunderlyingassetsofoptionslStocklForeignexchangelIndexlFutureslTypesofoptioncontractslCalloptionslCalloptiongivesthebuyertherighttobuy(callaway)aspecificnumberofsharesofaspecificcompanyf

4、romtheoptionwriterataspecificpurchasepriceatanytimeuptoandincludingaspecificdate.Notethatthecontractspecifies4items:lThecompanywhosesharescanbeboughtlThenumberofsharesthatcanbeboughtlThepurchasepriceforthoseshares,knownastheexercisepriceorstrikingpricelThed

5、atewhentherighttobuyexpires,knownastheexpirationdate(orexercisedate,maturitydate)lThepointisthatthebuyerofacalloptionwillhavetopaythewritersomethinginordertogetthewritertosignthecontract.Theamountpaidiscalledpremium.lClosedtheoptionslThewritercouldbuythecon

6、tractbackfrombuyerorfindsomeoneelsetotakethepositioninthecontract.lThebuyercouldlookforsomeonewhoiswillingtopayanagreed—uponsumofmoneytopossesstheoption’sright.lRoleofExchangelPutoptionslPutoptiongivesthebuyertherighttosell(toputaway)aspecificnumberofshares

7、ofaspecificcompanytotheoptionwriterataspecificsellingpriceatanytimeuptoandincludingaspecificdate.lThecompanywhosesharescanbesoldlThenumberofsharesthatcanbesoldlThesellingpriceforthoseshares,knownastheexercisepriceorstrikingpricelThedatewhentherighttosellexp

8、ires,knownastheexpirationdatelAmericanoptionslEuropeanoptionslOTCoptionslBermudanoptionslAsianoptionslPositionofoptionlLongpositionlShortpositionlPositionlimitlOptiontradinglExchangesbegintradinganewse