A Basic Options Review

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A Basic Options Review. Options. Right to Buy/Sell a specified asset at a known price on or before a specified date . Call Option - Right to buy Put Option - Right to sell When Option Bought/Sold, Premium is exchanged. Option Specifications.
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A Basic Options ReviewOptions
  • Right to Buy/Sell a specified asset at a known price on or before a specified date.
  • Call Option - Right to buy
  • Put Option - Right to sell
  • When Option Bought/Sold, Premium is exchanged.
  • Option Specifications
  • Current Price of Specified Asset - S(S as we consider options on stocks first)
  • Specified Price of Buy/Sell - X(or Strike Price, so some use K)
  • Last time to Buy/Sell – Expiry ( T ) (or Expiration date)
  • Note: There will be other factors when we actually start calculating prices, but for now we will take all market prices as given.
  • Basic Option Payoffs: Call OptionOut ofthe MoneyInthe MoneyPayoffPayoffPricePriceCurrent StockPriceOptionExercisePriceStock PayoffsCall Option PayoffsCall Option Payoff = Max[ 0 , S - X ](Intrinsic Value)Basic Option Payoffs: Put OptionInthe MoneyOut ofthe MoneyPayoffPayoffPricePriceCurrent StockPriceOptionExercisePriceStock PayoffsPut Option PayoffsPut Option Payoff = Max[ 0 , X - S ](Intrinsic Value)
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