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Put option: A put option gives its buyer the right, but not the obligation, to sell a stock at the strike price prior to the expiration date. When you buy a call or put option, you pay a premium ...
In the financial world, options come in one of two flavors: calls and puts. The basic way that calls and puts function is actually fairly simple. A call option is a contract giving you the right to...
The value of a call time spread (composed of a long call option and a short call option at the same strike price but with different expiry dates) and the corresponding put time spread should be related by put-call parity, with the difference in price explained by the effect of interest rates and dividends.
For example, suppose a put option with a strike price of $100 for ABC stock is sold at $1.00 and a put option for ABC with a strike price of $90 is purchased for $0.50, and at the option's expiration the price of the stock or index is greater than the short put strike price of $100, then the return generated for this position is:
A put option is out-of-the-money if the underlying's spot price is higher than the strike price. As shown in the below equations and graph, the intrinsic value (IV) of a call option is positive when the underlying asset's spot price S exceeds the option's strike price K. Value of a call option: [(),], or () + Value of a put option: [(),], or () +
Buying call and put options on same underlying stocks at same strike prices and expiration. Profit if share prices rise or fall sharply beyond combined premium costs. Requires big price moves to ...
Option values vary with the value of the underlying instrument over time. The price of the call contract must act as a proxy response for the valuation of: the expected intrinsic value of the option, defined as the expected value of the difference between the strike price and the market value, i.e., max[S−X, 0]. [3]
At each final node of the tree—i.e. at expiration of the option—the option value is simply its intrinsic, or exercise, value: Max [ (S n − K), 0 ], for a call option Max [ (K − S n), 0 ], for a put option, Where K is the strike price and is the spot price of the underlying asset at the n th period.
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