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Why in short put the seller o a put option has the obligation to buy the underlying asset?
In all of these, the seller of the option warrants that he will do whatever it is the contract requires if the buyer exercises the option.
What else can I help you with?
Does the price of an option increase or decrease as the underlying asset becomes more volatile?
Usually, yeah. (Answerer shrugs...) In the derivatives business there are no absolutes, but in a lot of cases the premium rises with increasing volatility.
Why call option price cannot exceed the price of underlying asset?
Call options allow their buyers to purchase assets from a "counterparty" for a set price--which is called the "strike price." Say, 100 shares of Acme for $25 with expiration in June. The reason you buy this thing is because you think the price of the asset is going to go up. If Acme stock goes up to $27, you exercise your option and pay $25 per share. If you paid less than $2 per share premium, you'll make money when you sell the stock. If you exercised the option when Acme was $23, you'd pay $25 for $23 stock--which is a bad investment any way you look at it. Call prices CAN exceed the price of the underlying asset. It happens all the time, but no one exercises the options when they're like this because you would lose money if you did.
Who has the advantage buyer or seller of the derivative?
The advantage between the buyer and seller of a derivative depends on market conditions and the specific circumstances of the trade. Buyers typically have the potential for unlimited profit if the underlying asset moves favorably, while sellers face limited profit but potentially unlimited loss. In volatile markets, buyers may have an edge due to the increased potential for price movement. However, sellers can benefit from premium collection and market stabilization in less volatile environments.
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 are the various Principles of forward and future pricing?
The principles of forward and futures pricing are based on concepts like arbitrage, cost of carry, and market expectations. Arbitrage ensures that there are no price discrepancies between the spot and futures markets, while the cost of carry accounts for storage, interest, and other holding costs associated with the underlying asset. Additionally, futures prices reflect market expectations regarding future supply and demand conditions. These principles help in determining fair pricing for contracts based on the underlying asset's characteristics and market dynamics.
Difference between put option and call option?
The holder/purchaser/owner of a call option contract has the right to buy an asset (or call the asset away) from a writer/seller of a call option contract at the pre-determined contract or strike price. The holder/purchaser/owner of a call option contract expects the price of the underlying asset to rise during the term or duration of the call contract, for as the value of the underlying asset increases so does the value of the call option contract. Conversely, the write/seller of a call option contract expects the price of the underlying asset to remain stable or to decline. The holder/purchaser/owner of a put option contract has the right to sell an asset (or put the asset) to a writer/seller of a put option contract at the pre-determined contract or strike price. The holder/purchaser/owner of a put option contract expects the price of the underlying asset to decline during the term or duration of the put contract, for as the value of the underlying asset declines the contract value increases. Conversely, the writer/seller of a put option contract expects the price of the underlying asset to remain stable or to rise.
Why would someone choose to sell a put option?
Someone might choose to sell a put option in order to generate income or profit from the premium received. By selling a put option, the seller is obligated to buy the underlying asset at a specified price (the strike price) if the option is exercised by the buyer. If the price of the underlying asset remains above the strike price, the seller keeps the premium as profit without having to buy the asset.
Who sells strike?
A strike is typically sold by an options trader or investor who believes that the underlying asset will not reach the strike price before the option's expiration. This process is known as writing or selling options, and it can be done by individual investors or institutions. The seller receives a premium from the buyer of the option, which is the income generated from the transaction. In this context, the seller takes on the obligation to fulfill the option contract if it is exercised by the buyer.
What is an option contract that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a specified strike price?
An option contract is a financial agreement that allows the holder to buy or sell an asset at a set price, but they are not required to do so.
What Is an Underlying Asset in binary options?
An option's underlying asset is a market traded asset, such as currency exchange rate, stocks or bonds, and market indices. Fluctuations in the market value of an underlying asset serve as the basis for the value of an option vis-à-vis an option's strike price.
How do you exercise a put option?
To exercise a put option, the holder of the option must inform the seller that they want to sell the underlying asset at the agreed-upon strike price before the option's expiration date. This allows the holder to sell the asset at a profit if the market price is lower than the strike price.
How to exercise a put option?
To exercise a put option, the holder of the option must notify the seller of their intention to sell the underlying asset at the agreed-upon strike price before the option's expiration date. This allows the holder to sell the asset at a profit if the market price is lower than the strike price.
What is the point of a stock option loan?
Well a stock option loan is an derivative financial instrument that specifies a contract between two parties for a furture transaction on an asset at a reference price. The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the corresponding obligation to fulfill the transaction.
What is it called when the price specified in an option contract at which the holder can buy or sell the underlying asset?
The price specified in an option contract at which the holder can buy or sell the underlying asset is called the "strike price" or "exercise price." This is a crucial component of the option, as it determines the conditions under which the holder can exercise the option to buy (call option) or sell (put option) the underlying asset.
How can I learn about stock options basics?
In finance, an option is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset at a reference price. The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the corresponding obligation to fulfill the transaction
What does it mean to be selling out of a put?
Selling out of a put means that an investor is closing a position by selling a put option they previously bought. This action typically occurs when the investor wants to realize profits or limit losses as the underlying asset's price changes. By selling the put, the investor no longer has the obligation to sell the underlying asset at the strike price. Essentially, it’s a strategy to exit a bearish position on the underlying asset.
How can one exercise a call option?
To exercise a call option, the option holder can buy the underlying asset at the strike price before the option's expiration date.
