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In finance, the expiration date of an option contract (represented by Greek letter tau, τ) is the last date on which the holder of the option may exercise it according to its terms. [1] In the case of options with "automatic exercise", the net value of the option is credited to the long and debited to the short position holders.
As long as the price of the JKH stock is greater than $51 at stock option expiration, the position will be profitable. The percent maximum loss is the difference between the break-even price and the strike price of the purchased put option divided by the net investment, for example for JKH: %Max loss = (51 - 50)/[52.5-(2-0.5)] = 2%
A compound option is an option on another option, and as such presents the holder with two separate exercise dates and decisions. If the first exercise date arrives and the 'inner' option's market price is below the agreed strike the first option will be exercised (European style), giving the holder a further option at final maturity.
For example, imagine a trader bought a call for $0.50 with a strike price of $20, and the stock is $23 at expiration. The option is worth $3 (the $23 stock price minus the $20 strike price) and ...
If an option is out-of-the-money at expiration, its holder simply abandons the option and it expires worthless. Hence, a purchased option can never have a negative value . [ 4 ] This is because a rational investor would choose to buy the underlying stock at the market price rather than exercise an out-of-the-money call option to buy the same ...
Strike price labeled on the graph of a call option.To the right, the option is in-the-money, and to the left, it is out-of-the-money. In finance, the strike price (or exercise price) of an option is a fixed price at which the owner of the option can buy (in the case of a call), or sell (in the case of a put), the underlying security or commodity.
Here’s the profit at expiration on the bear put spread at a range of stock prices. Upside/downside: This spread will be worth $4 at most, or the difference between the $16 and $20 strike prices.
The option style, as specified in the contract, determines when, how, and under what circumstances, the option holder may exercise it. It is at the discretion of the owner whether (and in some circumstances when) to exercise it. European – European-style option contracts may only be exercised at the option's expiration date. Thus they can ...