Flashcards
Options
Flashcards do conjunto (22)
- 1OptionsOptions give the holder the right, but not the obligation, to buy or sell an asset at a pre-determined (contractually enforceable) exercise price at some time in the future
- 2Call OptionGives the holder the right to buy the asset
- 3Put OptionGives the holder the right to sell the asset
- 4Bought PositionYou hold the option and have the right to exercise it (long)
- 5Sold PositionSomeone else has the right to exercise it against you (short)
- you have a contingent liability
- in return for selling the option, you are paid a premium - 6CallRight to buy
- 7PutRight to sell
- 8Intrinsic valuePayoff from the option if it were to expire immediately
- 9'Moneyness'The value of the asset relative to the exercise price
- Deep-out-of-the-money
- Out-of-the-money
- At-the-money
- In-the-money
- Deep-in-the-money - 10PayoffDifference between the market price of the asset and the exercise price of the option
- 11ProfitAlso accounts for the cash inflow/outflow from the premium
- 12Time ValueThe difference between the intrinsic value and the total option value
- 13Drivers of option value (impact on intrinsic value)1. Exercise price of the option
2. Value of the underlying asset
3. Interest rate
4. Dividends over the life of the option - 14Drivers of option value (impact on time value)5. Volatility of prices for the asset
6. Term to expiry of the option - 15Impact of exercise price on option valueCall Options: Negative relationship
- As X increases, you have the right to pay more for the asset and the option becomes cheaper
Put Options: Positive relationship
- As X increases, you have the right to receive more for the asset and the option becomes more expensive - 16Impact of value of the underlying asset on option valueCall Options: Positive relationship
- As the asset becomes more valuable, the right to purchase at a fixed price becomes more expensive
Put Options: Negative relationship
- As the asset becomes more valuable, the right to sell at a fixed price becomes cheaper - 17Impact of interest rates on option valueCall Options: Positive Relationship
- A call option involves a possible future cash outflow and the prevent value of this outflow decreases with rises in interest rates - this increases the value of the option
Put Options: Negative Relationship
- A put option involves a possible future cash inflow and the prevent value of this inflow decreases with rises in interest rates - this decreases the value of the option - 18Impact of dividends on option valueCall Options: Negative Relationship
- When an asset goes ‘ex-dividend’, the asset’s value declines by the dividend amount and this decrease the intrinsic value of the call option
Put Option: Positive Relationship
- A decline in the value of the asset on the ex-dividend date increases the value of a put option - 19Impact of volatility of asset prices on option valueCall/Put Options: Positive Relationship
- An increase in volatility increases the chance that the option will finish deeper in/out of the money - 20Impact of time to expiry on option valueCall/Put Options: Positive Relationship
- An increase in time to expiry increases the chance that the option will finish deeper in/out of the money - 21European Style OptionCan only be exercised by the option holder at expiry
- 22American Style OptionCan be exercised by the option holder at any time up to and including expiry
Informações
- Descrição
- FlashCards sobre Options, criado por Hugo Morgan em 03-06-2019.
- Criado por
- Hugo Morgan
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