Chapter 15 - Options Market

what are derivatives

securities whose price depends on other securities

what is a call option

right to buy

what to put option

right to sell

in the money means

positive cash flow

what does out of the money mean

negative cash flow

what does at the money mean

equal

1. $110

2. $102

3. less than $100

1. more than $100

2. 498

3. $92

The buyer of the call option wishes stock price go (up or down)

The buyer of the put option wishes stock price go (up or down)

1. up

2. down

Is it in the money, out of the money, or at the money

Call option $100 strike price

• $95

• $105

• $100

Put option $100 strike price

• $95

• $105

• $100

Questions:

1. Suppose an investor purchases the March 2009 expiration IBM calls

with exercise price $95.

 What will be the profits if the stock price at option expiration is $85?

 What if the stock price at expiration is $105?

2. Suppose an investor purchases the March 2009 expiration IBM puts

with exercise price $95.

 What will be the profits if the stock price at option expiration is $85?

 What if the stock price at expiration is $105?

what is asian options

Options with payoffs that depend on average

price of underlying asset during portion of

option life

what is currency-translated options

Have either asset or exercise price

denominated in foreign currency

digital options

Have fixed payoffs that depend on price of

underlying asset