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{{eqderivanat|2.3(b)}} | {{eqderivanat|2.3(b)}} | ||
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}}. | |||
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]]. | |||
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. | |||
But you wouldn't exercise it while it was [[out-of-the-money]], all the same. | |||
{{sa}} | {{sa}} | ||
*{{eqderivprov|Call}} | *{{eqderivprov|Call}} | ||
*What it means to be [[short an option]] | *What it means to be [[short an option]] |