Options
•
An options give the holder (firm) the right (not
the obligation) to buy or sell an asset in the future at an agreed upon price
today.
Call options Vs Put options
A Call option grants the owner the right to purchase a
specific financial instrument for a specified price ( called exercise price or
strike price) within a specified period of time.
A call option is said to be:
•
In the money when the market price of the
underlying security exceeds the exercise price.
•
At the money: when market price is equal to the
exercise price.
•
Out of the money: when it is below exercise
price.
A Put option grants the owner the right to sell a specified
financial instrument for a specified price
within a specified period of time.
A put option is said
to be:
•
In the money when the market price of the
underlying security is below the exercise price
•
At the money: when market price is equal to the
exercise price.
•
Out of the money: when it is over exercise
price.
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