Lecture 2.  Option - Gives the holder the right to buy or sell a security at a specified price during a specified period of time.  Call Option - The.

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Presentation transcript:

Lecture 2

 Option - Gives the holder the right to buy or sell a security at a specified price during a specified period of time.  Call Option - The right to buy a security at a specified price within a specified time.  Put Option - The right to sell a security at a specified price within a specified time.  Option Premium - The price paid for the option, above the price of the underlying security.  Intrinsic Value - Diff between the strike price and the stock price  Time Premium - Value of option above the intrinsic value  Exercise Price - (Striking Price) The price at which you buy or sell the security.  Expiration Date - The last date on which the option can be exercised.

Price (expiration) Time (days)

1. Expiration 2. Exercise 3. Sales  American option  European option

Intrinsic Value = P - E Premium = Option price Time Premium = O + E – P Warrants Convertible Bonds

Asset Price Profit Loss

Asset Price Profit Loss

Asset Price Profit Loss

Asset Price Profit Loss

Asset Price Profit Loss

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