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| {{eqderivanat|2.3(b)}}
| | #redirect[[Option Type - Equity Derivatives Provision]] |
| The basic definition of a [[put option]]. I am entitled to sell shares to you at a pre-agreed price ({{eqderivprov|Strike Price}}) on a pre-agreed date (i.e., a {{eqderivprov|European Option}}) or a any time up to a pre-agreed date (i.e., an {{eqderivprov|American Option}}). You can also cash settle a put by paying the negative difference between the prevailing share price on the {{eqderivprov|Exercise Date}} and the {{eqderivprov|Strike Price}}.
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| But what if the difference between the share price and the Strike Price is ''positive'' on the {{eqderivprov|Exercise Date}}? Then you wouldn’t exercise your [[put option]], friend, because you are ''[[homo economicus]]'', remember: the modern embodiment of the [[Reasonable person|rational person on the Clapham Omnibus]].
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| At any time where the prevailing share price is below the {{eqderivprov|Strike Price}}, your option is “[[in-the-money]]”. If the share price is above the {{eqderivprov|Strike Price}} it is “[[out-of-the-money]]”. The option has [[time value]] though, so just because it it out of the money it doesn't mean it's worthless.
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| But you wouldn't exercise it while it was [[out-of-the-money]], all the same.
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| {{sa}}
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| *{{eqderivprov|Call}}
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| *What it means to be [[short an option]]
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Latest revision as of 12:22, 10 May 2022