Term
a security that gives its holder the opportunity to either buy something (100 shares of common stock) or do nothing. It includes a time period at the end of which the option expires or ends |
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a security that gives its holder the opportunity either to sell something (100 shares of common stock) at a certain price or do nothing. includes a time period when the option ends |
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a statistical distribution in which the variables can take on only positive numbers |
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A model for valuing options based on 5 variables: 1. the value of the underlying asset 2. the time to expiration of the option 3. the option's exercise price 4. volatility of underlying asset 5. risk-free rate of interest |
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Definition
Black-Scholes option pricing model |
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Term
the price at which the stock underlying the stock option can be purchased |
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The amount the buyer of an option has to pay for the right to purchase or sell the stock at the specific price by a specific date. |
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option premium or option price |
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The last day an option can be exercised. at 4 pm on the 3rd friday of that month |
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call options whose underlying price is currently above the exercise price |
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call options whose underlying stock price is currently below the exercise price. These options will have some value as long as investors believe that there is a chance that the option will be in the money by expiration |
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out of the money call options |
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options whose underlying stock price is currently equal to the exercise price |
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the individual who created and sold the call option and agrees to deliver the option's underlying asset to the buyer if the strike price is demanded |
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call option for which the writer owns the underlying stock |
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call options for which the option writer has no holdings of the underlying stock |
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the corporation that handles all option transactions on the exchange. its a safeguard to every buyer |
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call options whose underlying security is an index of stocks instead of a single stock. the value of the call option rises with index of stocks such as the S&P 500 instead of with a single stock like IBM |
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options can be combined with stocks or with other options to create different payout streams |
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a call option and a put option on the same stock with the same exercise price and the same expiration date |
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two put options and a call option, all on the same underlying security, all with the same exercise price and expiration date |
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two call options and a put option, all on the same underlying security, all with the same exercise price and expiration date |
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the purchase of one option and the simultaneous sale of another option on the same underlying security at a different exercise price or a different expiration date |
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financial activity that focuses on the control of environmental risk exposures using options and other derivatives |
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