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Why do call options with exercise prices greater than the price of the underlying stock sell for positive prices?
Wiki User
∙ 10y ago
Because of the way call options work.
If someone was selling calls on $50 stock for $45, that means he would be giving away $5 per share because everyone in the world would buy his $45 stock, immediately sell it for $50, deduct the premium paid and come out with a nice little profit.
Stock options are priced using a formula that estimates what the price of a stock should rise or fall to in a certain period of time.
Wiki User
∙ 10y ago
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Which one has great potential-call option or put option?
Call options allow you to always buy the underlying stock at its strike price before expiration no matter what price the stock is in future and is therefore bought when the underlying stock is expected to go UP. Put options allow you to always sell the underlying stock at its strike price before expiration no matter what price the stock is in future and is therefore bought when the underlying stock is expected to go DOWN. As such, which one has greater potential depends on the prevailing market condition and your general outlook on the trend of the underlying stock. Generally, call options would have more appreciation potential in a bull market and put options would have more appreciation potential in a bear market.
How do you calculate gain and loss on covered call options?
G/L = (amount sold (for underlying security) - amount paid (for underlying security))+ premium paid There are commercial tools available to help you with covered call trade selection and covered call portfolio management. They will also perform the profit/loss calculations. See www.borntosell.com as an example.
What position in call options is equivalent to a protective put?
An investor who purchases a put option while holding shares of the underlying stock from a previous purchase is employing a "protective put." In other words, you buy a put option on stock you already own.
How do you use delta in option trade?
Delta is the measurement of the sensitivity of the price of an option to the price movement of the underlying stock.Delta can be useful in predicting profits, having a feel of the probability of the option ending up in the money by expiration under normal conditions and for hedging.In predicting profits, an option with 0.5 delta would move $0.50 when the underlying stock moves $1. By summing up the delta of your options, you would know how much profit you would make with a predicted move on the underlying stock. For instance, if the underlying stock is expected to move by $5, an option with 0.5 delta would move $2.50.Delta is also a measure of the probability that an option would end up in the money by expiration. An at the money option has 0.5 delta has a 50% chance of ending up in the money. The deeper in the money the option goes, the bigger the delta and hence the higher the chance it will end up in the money. Options with delta of 1 would almost definitely end up in the money by expiration under normal conditions.Delta is perhaps most important for hedging in the area of delta neutral hedging. Read the related links below for more info.
How does the put option values fall and rise while call options values rise and fall as the rerlevant stock prices rises?
The Payoff i.e. profit for a Call Option is St-X where St is the market price at time t and X is the exercise price. Assuming that it is an American Style option where it can be exercised at any time, If St is significantly greater than the exercise price,X, (the agreed price to buy an option at) then if the option holder exercises it immediately they will be 'in-the-money.' This means it has a high intrinsic value which causes a rise in value for the option. The Payoff for a Put Option is X-St where X=exercise price and St equals market price at time t. If the market price increases the gap between X and St (Payoff or Profit) reduces or if X<St then they will be making a loss. This will mean it will have a low intrinsic value (value if exercised immediately) therefore the value of the option will fall.
Which one has great potential-call option or put option?
Call options allow you to always buy the underlying stock at its strike price before expiration no matter what price the stock is in future and is therefore bought when the underlying stock is expected to go UP. Put options allow you to always sell the underlying stock at its strike price before expiration no matter what price the stock is in future and is therefore bought when the underlying stock is expected to go DOWN. As such, which one has greater potential depends on the prevailing market condition and your general outlook on the trend of the underlying stock. Generally, call options would have more appreciation potential in a bull market and put options would have more appreciation potential in a bear market.
What are the positive effects of resistance exercise training?
If has these as your options: musculoskeletal system; preventing loss in body mass; reducing lower-back pain; and all of the above. your answer is all of the above. :)
What are derivative trades?
Derivatives are financial instruments that derive their price and values from their underlying asset. Examples of derivatives are options and futures. Both options and futures derive their value from their underlying stocks. Trading derivatives means buying options or futures instead of the stocks itself mainly for leverage.
What is the phone number of the Positive Options in Grand Rapids Michigan?
The phone number of the Positive Options is: 616-241-5554.
What are my diet and exercise plan options for losing weight?
The diet and exercise plan options for losing weight is to get into a good routine by staring with what you eat. Then you need to program your body to exercise 15 to 20 min. a day.
What are touch binary options?
Touch options expire in-the-money if the price of the underlying asset touches a predetermined barrier by the time of expiration. Price barriers can be higher or lower than the current price of the underlying when the option is purchased, enabling traders to take advantage of the traditional omni-directionality offered by binary options.
What are strike price call put when it is comes to stock options?
From Investopedia.com:What Does Strike Price Mean? The price at which a specific derivative contract can be exercised. Strike prices is mostly used to describe stock and index options, in which strike prices are fixed in the contract. For call options, the strike price is where the security can be bought (up to the expiration date), while for put options the strike price is the price at which shares can be sold.The difference between the underlying security's current market price and the option's strike price represents the amount of profit per share gained upon the exercise or the sale of the option. This is true for options that are in the money; the maximum amount that can be lost is the premium paid.Also known as the "exercise price".What Does Call Mean?1. The period of time between the opening and closing of some future markets wherein the prices are established through an auction process.2. An option contract giving the owner the right (but not the obligation) to buy a specified amount of an underlying security at a specified price within a specified time.What Does Put Mean? An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time. The buyer of a put option estimates that the underlying asset will drop below the exercise price before the expiration date.
What are options?
According to Optiontradingpedia.com,"A stock option is a contract that gives the buyer the "right" or "power", but not the "obligation", to exercise the contract on or before a fixed future date (the exercise date or expiration) to trade the underlying stock at an agreed price."Essentially, it is a trading instrument that gives you leverage if used purely for speculation and protection if used as a hedge. The various options strategies that can be made using options also gives traders a precise mean of trading almost every outlook on a stock.
Where is the Positive Options in Grand Rapids Michigan located?
The address of the Positive Options is: 710 Eastern Ave SE, Grand Rapids, MI 49503-5519
Options selling at prices higher than their exercise values?
Option value is composed of two components : Option value = Intrinsic value + time value Intrinsic value is the amount by which the option is in the money and given by the formula Max (0, S-X) Time value of option - this value depends on the time until the expiration date and the volatility of the underlying instrument's price. The time value of an option is always positive and declines exponentially with time, reaching zero at the expiration date. If the option is out of money its intrinsic value will be 0 but will still have time value of money and hence options sell higher than their exercise price. Read more: http://www.justanswer.com/questions/1v2lv-options-sell-prices-higher#ixzz0NUj0iVGm
What is the difference between vesting date and exercise date in ES OP?
The vesting schedule determines when the employee gets control over his options. Once vested, the employee still has to exercise the options at the exercise price during the exercise period in order to become the owner of the shares. The vesting schedule, exercise price and the exercise period are all specified in the stock option plan.
What is the automatic exercise threshold for in-the-money equity options by OCC?
answer: $0.01
