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Template:M summ Equity Derivatives 2.3: Difference between revisions
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Template:M summ Equity Derivatives 2.3 (view source)
Revision as of 12:23, 10 May 2022
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Amwelladmin (talk | contribs) (Created page with "==={{eqderivprov|Call}}=== 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...") |
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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. | 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. | ||
==={{eqderivprov|Put}}=== | |||
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 {{eqderivprov|Share}} price on the {{eqderivprov|Exercise Date}} and the {{eqderivprov|Strike Price}}. | |||
But what if the difference between the {{eqderivprov|Share}} price and the {{eqderivprov|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. | |||