1. UNIT 3
OPTIONS

2. Introducton

3. Recap
Intrinsic value
Time Value

4. Call options ITM – ATM - OTM
Certain terms describe the relationship between the stock price and the call option’s strike price
As the stock price raises or falls, an option’s classification may change
An option which was once out-of-the-money (OTM) may now be in-the-money (ITM), or vice versa

5. IN-THE- MONEY CALL OPTION

6. AT-THE- MONEY CALL OPTION

7. OUT-OF-THE- MONEY CALL OPTION

8. IN-THE- MONEY PUT OPTION

9. AT-THE- MONEY PUT OPTION

10. OUT-OF-THE- MONEY CALL OPTION

11. Problem
The stock price of Reliance Industries in spot market is Rs.450 and two month option contract is of Rs The price of the option is Rs.20 per share. At what price the option will be at the money, out of money and In the money of the option is both call as well as put option?

12. Break….

13. Problem
The stock price of SBI in spot market is Rs.265 and two month option contract is of Rs The price of the option is Rs.50 per share. What is the position of the investor both call as well as put option?

14. Payoff
The x-axis (horizontal line) of a pay-off diagram represents the price of the underlying asset
The y-axis (vertical line) of a pay-off diagram represents the profit/loss on the option position.

15. OPTION PAYOFF The Option Buyer 1. Long Call
Pay-off diagram below represents the effective pay-off of a long call position of an option at the time of the expiry date. It looks at the option from the point of view of buyer.

16. The Option Buyer 1. Long Call

17. 2. Long Put

18. 3. Short Call

19. 4. Short Put

20. Conclusion…. Pay off profile of an Option
Pay off position
Call Option
Put Option
In-the-Money
strike price<Stock price
strike price>Stock price
At-the-Money
strike price=Stock price
Out-of-Money