《金融市场与机构 Jeff Madura》ch14.pptVIP

14 Options Markets Chapter Objectives Explain how stock options are used to speculate Explain why stock option premiums vary Explain how options are used by financial institutions to hedge their security portfolios Stock Options An option contract grants the buyer, who has paid a premium to the seller (writer), the right to buy or sell the underlying asset at a stated price within a specific period of time The premium paid to the writer is the cost of the option Buyer has the “option,” but not the obligation, to exercise the option Background on Options A call option buyer has right but not the obligation to buy the underlying asset at a set exercise or “strike” price for a specified period of time A put option buyer has the right but not the obligation to sell the underlying asset at a set “strike” price for a specified period of time Note components of an option: specific quantity of asset, price, and time period Background on Options Premium is the price the buyer of the put or call pays to buy an option contract Seller or writer of the option contract Receives the premium up front Has an ongoing obligation to sell (call) or buy (put) if the buyer decides to exercise the option contract Current market price of the underlying asset or financial instrument is called the spot price Background on Options Call options “In-the-money” means the call option’s strike or exercise price is lower than the market price for the underlying financial instrument The holder of the call can buy the stock at a price below the current market price The call premium (price) of the option would also be higher by the “in-the-money” At-the-money means the strike price equals the market price of the underlying asset Background on Options Put option In-the-money means the put option’s strike or exercise price is higher than the market price for the underlying financial instrument Put options give the investor an opportunity to make money from falling prices Investor has locked in a sale p