Introduction to Corporate Finance
8: Options Options traders say that a call option is in the money if the option’s strike price is less than the current share pr ...
ParT 2: ValuaTION, rISk aNd reTurN finance in practice ‘WE’RE IN THE MONEY’ Suppose that during your final year of university, y ...
8: Options 1 Explain the difference between the share price, the exercise price and the option premium. Which of these are marke ...
ParT 2: ValuaTION, rISk aNd reTurN The red line in Figure 8.1 shows a payoff diagram for the option buyer, or the long position. ...
8: Options the money, the seller earns an $8 profit. If the option expires in the money, the seller may realise a net profit or ...
ParT 2: ValuaTION, rISk aNd reTurN Again, the seller’s perspective is just the opposite of the buyer’s. The seller earns a maxim ...
8: Options In this example, Cybil is speculating, but not on the direction of IPC shares. Rather, Cybil’s gamble is on the volat ...
ParT 2: ValuaTION, rISk aNd reTurN long position in ordinary shares and bonds.^8 A payoff diagram shows the total value of a sec ...
8: Options The payoff diagram for the bond requires a little more explanation. The type of bond in this example is very special. ...
ParT 2: ValuaTION, rISk aNd reTurN in Figure 8.6, simply by combining one put option, with a strike price of $75, and one share. ...
8: Options Think carefully about what this means. An investor who wants to construct a position with a minimum payoff of $75, pl ...
ParT 2: ValuaTION, rISk aNd reTurN one share and one put option, with X = $75. No matter what happens to the share price over th ...
8: Options Pause a moment to take an inventory of the information that is required to value the Mototronics put option. To calcu ...
ParT 2: ValuaTION, rISk aNd reTurN the open market for $83.44. Buying the March call option requires an investment of just $2.15 ...
8: Options We can see a similar relationship by looking at Table 8.3, which shows what happened to the prices of March Charybdis ...
ParT 2: ValuaTION, rISk aNd reTurN example Suppose you are tracking two shares. One exhibits much more volatility than the other ...
8: Options This is not, however, the only option pricing model used by capital market analysts and traders. An option pricing mo ...
ParT 2: ValuaTION, rISk aNd reTurN The call option we want to price has a strike of $55. Therefore, if the underlying share reac ...
8: Options total. On the other hand, if one year from now the share price equals $40, then the call options we sold will be wort ...
ParT 2: ValuaTION, rISk aNd reTurN example We begin this problem with the same set of assumptions from the last problem. Financi ...
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