Put - Equity Derivatives Provision: Difference between revisions

Put - Equity Derivatives Provision (view source)

1,191 bytes added , 6 September 2019

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 {{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}}
 *{{eqderivprov|Call}}
 *What it means to be [[short an option]]