83,584
edits
Call - Equity Derivatives Provision: Difference between revisions
Jump to navigation
Jump to search
Call - Equity Derivatives Provision (view source)
Revision as of 15:00, 9 November 2018
, 9 November 2018no edit summary
Amwelladmin (talk | contribs) No edit summary |
Amwelladmin (talk | contribs) No edit summary |
||
| Line 2: | Line 2: | ||
The basic definition of a [[call option]]. I am entitled to buy shares from 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 Call by paying the positive difference between the prevailing share price on the {{eqderivprov|Exercise Date}} and the {{eqderivprov|Strike Price}}. | The basic definition of a [[call option]]. I am entitled to buy shares from 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 Call by paying the positive 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 negative on the Exercise Date? Then you | But what if the difference between the share price and the Strike Price is ''negative'' on the {{eqderivprov|Exercise Date}}? Then you wouldn’t exercise your [[call 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 above the {{eqderivprov|Strike Price}}, your option is [[in-the-money]]. If the share price is below 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. | At any time where the prevailing share price is above the {{eqderivprov|Strike Price}}, your option is “[[in-the-money]]”. If the share price is below 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. | ||