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Investments Chapter 20
Terms in this set (14)
gives its holder the right to sell an asset for a specified exercise or strike price on or before some expiration date
in the money
option described as in the money when its exercise would produce a positive cash flow
out of the money
option described as out of the money when the asset price is less than the exercise price
gives its holder the right to purchase an asset for a specified price called the exercise, or strike price, on or before some specified expiration date.
at the money
when the exercise price and asset are priced equally
allows its holder to exercise the right to purchase or sell the underlying asset on or before the expiration date
allows for exercise of the option only on the expiration date
buying a stock and a put option in order to prevent losing everything and guaranteeing a certain gain
purchase of a share of stock with a simultaneous sale of a call option on that stock.
buying both a call and a put on a stock, each with the same exercise price and expiration date. Useful for investors who believe a stock will move a lot in price but are uncertain about the direction of the move. Only bad if no movement
combination of two or more cal options, or put options, on the same stock with differing exercise prices or times to maturity
is an options strategy that brackets the value of a portfolio between two bounds.
put call parity thereom
represents the proper relationship between put and call prices. If it is ever violated, an arbitrage opportunity arises
essentially call options issued by a firm. The exercise of a warrant though, requires the firm to issue a new share of stock so the total number of shares outstanding decreases
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