# Section III

## 22 terms

S0e^rt

### Purchased Call Option -

Right but not obligation to buy Profit = max(0, St - K) - Pcalle^rt

### Written Call Option -

Obligates to sell at price if excersised Profit = -max(0, St - K) - Pcalle^rt

### Purchased Put Option -

Right but not obligation to sell Profit = max(0, K - St) - Ppute^rt

### Written Put Option

Obligates to buy at price if excersised Profit = - max(0, K - St) - Ppute^rt

St - S0e^rt

### Protective Put (Floor) :

Own the Index & Buy at the money put. (protects you if index falls below strike price)

### Synthetic Forwards -

Buy Call option K, Sell Put option K. (Guarantee possession of asset at time t for K)

### Put - Call Parity

PV(F0,T) = Call(k,t) - Put(k,t) + PV(K)

Buy at the Money Call, Sell out of Money Call

Sell at the Money Call, Buy out of the Money Call

Create Synthetic Forward Purchace at the Money, Create Synthetic Forward Sale out of the Money

Buy at the Money Put, Sell out of Money Call

Buy at the Money Call & Put

### Stangle:

Buy out of Money Call & Put

Write a Straddle (Sell put & Call same K) & Purchase Strangle

### Pricing Prepaid Forward Contracts for a stock with No Dividend

P(F0,T) = S0; F0,T = e^rt S0

### Pricing Prepaid Forward Contracts for a stock with Discrete Dividend

P(F0,T) = S0 - PV(Dividends); F0,T = e^rt (S0 - PV(Dividends))

### Pricing Prepaid Forward Contracts for a stock with Continuous Dividend

P(F0,T) = S0 e^(-delta r); F0,T = e^rt (S0 e^(-delta r))

### Stock at time T =

Long Forward + Zero-Coupon Bond

### Swap:

An agreement covering forward sales over multiple time periods