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Call and put Options 1. Call option; and 2. Put option 3 4. Buying a House 8 9. Buying a House 9 Buying a House Call Option 10 Buying a House 11 Buying a House 12 Actual cost of this option Premium??
Buying Gold Call Option 13 Buying gold — Scenario 1 Call Option 14 Put Option What is Put Option? Put Option Example 1: Selling stocks Suppose that you believe yahoo stock is going to fall in the near future.
Selling stocks — Scenario 1 Put Option 23 Why Investors Use Options? Selling stocks Why Investors Use Options? Hedging - Example 2: Selling stocks — Scenario 2 31 Value of an Option Option value and the Volatility of the underlying asset Example 1: When the volatility of an underlying is zero, we can easily find the option value most of the time.
For example, the options on items for shopping have no value because the volatility of the underlying item is usually zero. However, in case of a cancellable airline ticket, the value of the cancellable option is NOT zero even when the price of the airline ticket has no volatility. Note that if everybody cancels, the airline company may not sell all the cancelled seats within a short period of time. Consider an at-the-money equity option. Then if the volatily of the equity is zero, there is no value for the option.
But this argument is NOT always valid, say, a cancellable airline ticker. Profit and Losses to the Buyer of a Put Option 42 Profit and Losses to the Writer of a Put Option 44 Is American Option worth more than European? Should we exercise when American options is in the money? For call options we want to delays the payment of strike price as forward example. We can earn an interest on strike price throughout the life of an option 2. For Put value exercise of an American put option is a trade-off between the time value of money and an insurance value.
The time decreases the value of an option. However, an option holder gets an insurance value instead. Ready for a small quiz? Start clipping No thanks.
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