answersLogoWhite

0

An option is the right to buy or sell the underlying commodity (e.g., stock) during a specific future time at a predetermined price. The price or cost of an option is called a "premium". The factors which determine an option's value are: 1. Price of the underlying 2. Time to Expiry 3. Strike of the option 4. Volatility of the underlying General Electric stock is currently trading at $34.00. You purchase a Call option ("right to buy") X shares of GE stock at $30.00 on 17 Nov 2006. Underlying = X shares of General Electric Stock Strike = $30.00 Expiry = 18 November 2006 Option Cost: $4.70 (1) At expiry: GE Stock is $40.00. You "exercise" your option: Buy the stock at $30.00, then sell the stock at $40.00, to make $10.00 on the exercise. Your profits are: $10.00 - $4.70 (cost of option) = $5.30 per share (2) At expiry: GE Stock is $28.00. You could buy the stock at $30, but then you'd lose $2.00 per share! Your options expire worthless, and you have lost the money you paid for the options. If the price of GE is only $34.00 today, why would you pay $4.70 for the right to buy it at $30.00? ($34.00 strike - $30.00 current price = only $4.00!) The answer is that we don't expect a stock price to remain constant over time. This is where uncertainty comes into play. Uncertainty has value. A stock price is volatile. Think about it: would you expect GE share price in a month to be exactly the same price it is today? No. So there is a good chance that the price will be above $34.00 (or below $34.00). Along these same lines, the more time there is between now and expiry, the more uncertainty there is. Therefore, time and volatility play a big role in how an option is valued. Going back to GE, we can easily see the time value reflected in the price of an option with the same strike but different expiry. The extra month of time is worth $0.30 upfront cost. Underlying = X shares of General Electric Stock Strike = $30.00 Expiry = ** 18 November 2006 ** Option Cost: $4.70 Underlying = X shares of General Electric Stock Strike = $30.00 Expiry = ** 18 December 2006 ** Option Cost: $5.00
An option grants the holder the right but not the obligation to buy or sell the underlying stock at a fixed price by a fixed date.

As options only cost a fraction of the price of the underlying stock, it is commonly used as a speculative leverage instrument.
that you think what you think

User Avatar

Wiki User

9y ago

What else can I help you with?

Related Questions

What is an option buy?

An option buy is when you buy an option, whether call option or put option, using the Buy To Open order.


Is call option and buy option are same or not?

As far as I know there isn't a "buy option," but a call option is an option to buy so I guess you could think of it as a "buy option."


Euthanasia is not an option?

what are you on about euthenasia is sometimes the only option what am I on about ITS THE ONLY OPTION


How do you make symbols on a mac?

I know of two ways to do this....The easiest is1) Go to System Preferences2) Click on International3) Find the Input Menu button4) Choose Keyboard Viewer5) A little flag will appear on the toolbar, in the upper-right corner (varying depending on where you live)6) Click on the flag, and a drop-down list appears. Click on Show Keyboard Viewer.7) A miniature keyboard will appear on your screen. It works just like a normal one, though if you press Option, a bunch of symbols will come up.The other way is (probably simpler, but requires a very good memory)1) Click Option2) Choose any number or letter key.3) A symbol will come up.4) There are more symbols if you press the Shift key as well (my personal favourite being Option + Shift + K )5) You must remember what each combination does... that's why I find the Keyboard Viewer easiest.Here are all the different symbols:Option and ` =`Option and 1 = ¡Option and 2 = ™Option and 3 = £Option and 4 = ¢Option and 5 = ∞Option and 6 = §Option and 7 = ¶Option and 8 = •Option and 9 = ªOption and 0 = ºOption and - = -Option and = = ≠Option and q = œOption and w = ∑Option and e = ´Option and r = ®Option and t = †Option and y = ¥Option and u = ¨Option and i = ˆOption and o = øOption and p = πOption and [ = "Option and ] = 'Option and \ = «Option and a = åOption and s = ßOption and d = ∂Option and f = ƒOption and g = ©Option and h = ˙Option and j = ∆Option and k = ˚Option and l = ¬Option and ; = …Option and ' = æOption and z = ΩOption and x = ≈Option and c = çOption and v = √Option and b = ∫Option and n = ˜Option and m = µOption and , = ≤Option and . = ≥Option and / = ÷Option, Shift, and ` = `Option, Shift, and 1 = ⁄Option, Shift, and 2 = €Option, Shift, and 3 = ‹Option, Shift, and 4 = ›Option, Shift, and 5 = fiOption, Shift, and 6 = flOption, Shift, and 7 = ‡Option, Shift, and 8 = °Option, Shift, and 9 = ·Option, Shift, and 0 = 'Option, Shift, and - = -Option, Shift, and = = ±Option, Shift, and q = ŒOption, Shift, and w = "Option, Shift, and e = ´Option, Shift, and r = ‰Option, Shift, and t = ˇOption, Shift, and y = ÁOption, Shift, and u = ¨Option, Shift, and i = ˆOption, Shift, and o = ØOption, Shift, and p = ∏Option, Shift, and [ = "Option, Shift, and ] = 'Option, Shift, and \ = »Option, Shift, and a = ÅOption, Shift, and s = ÍOption, Shift, and d = ÎOption, Shift, and f = ÏOption, Shift, and g = ˝Option, Shift, and h = ÓOption, Shift, and j = ÔOption, Shift, and k = Option, Shift, and l = ÒOption, Shift, and ; = ÚOption, Shift, and ' = ÆOption, Shift, and z = ¸Option, Shift, and x = ˛Option, Shift, and c = ÇOption, Shift, and v = ◊Option, Shift, and b = ıOption, Shift, and n = ˜Option, Shift, and m = ÂOption, Shift, and , = ¯Option, Shift, and . = ˘Option, Shift, and / = ¿


What are the key differences between a European option and an American option?

The main difference between a European option and an American option is the exercise or strike price. In a European option, the option can only be exercised at the expiration date, while in an American option, the option can be exercised at any time before the expiration date.


Preferred HTML tag for drop down list?

That would be the <select> tag. Example of usage: <select> <option>Option 1 in drop-down list</option> <option selected="selected">Option 2 (selected by default because of the "selected" attribute)</option> <option disabled="disabled">Option 3 (disabled because of the "disabled" attribute)</option> </select>


Html pull down menu example for month day and year I would like to get an example on how to write month day and year in HTML form?

# <select name="month" id="month"> # <option value="1" <?PHP if($month==1) echo "selected";?>>January</option> # <option value="2" <?PHP if($month==2) echo "selected";?>>February</option> # <option value="3" <?PHP if($month==3) echo "selected";?>>March</option> # <option value="4" <?PHP if($month==4) echo "selected";?>>April</option> # <option value="5" <?PHP if($month==5) echo "selected";?>>May</option> # <option value="6" <?PHP if($month==6) echo "selected";?>>June</option> # <option value="7" <?PHP if($month==7) echo "selected";?>>July</option> # <option value="8" <?PHP if($month==8) echo "selected";?>>August</option> # <option value="9" <?PHP if($month==9) echo "selected";?>>September</option> # <option value="10" <?PHP if($month==10) echo "selected";?>>October</option> # <option value="11" <?PHP if($month==11) echo "selected";?>>November</option> # <option value="12" <?PHP if($month==12) echo "selected";?>>December</option> # </select> # # <select name="day" id="day"> # <option value="1" <?PHP if($day==1) echo "selected";?>>1</option> # <option value="2" <?PHP if($day==2) echo "selected";?>>2</option> # <option value="3" <?PHP if($day==3) echo "selected";?>>3</option> # <option value="4" <?PHP if($day==4) echo "selected";?>>4</option> # <option value="5" <?PHP if($day==5) echo "selected";?>>5</option> # <option value="6" <?PHP if($day==6) echo "selected";?>>6</option> # <option value="7" <?PHP if($day==7) echo "selected";?>>7</option> # <option value="8" <?PHP if($day==8) echo "selected";?>>8</option> # <option value="9" <?PHP if($day==9) echo "selected";?>>9</option> # <option value="10" <?PHP if($day==10) echo "selected";?>>10</option> # <option value="11" <?PHP if($day==11) echo "selected";?>>11</option> # <option value="12" <?PHP if($day==12) echo "selected";?>>12</option> # <option value="13" <?PHP if($day==13) echo "selected";?>>13</option> # <option value="14" <?PHP if($day==14) echo "selected";?>>14</option> # <option value="15" <?PHP if($day==15) echo "selected";?>>15</option> # <option value="16" <?PHP if($day==16) echo "selected";?>>16</option> # <option value="17" <?PHP if($day==17) echo "selected";?>>17</option> # <option value="18" <?PHP if($day==18) echo "selected";?>>18</option> # <option value="19" <?PHP if($day==19) echo "selected";?>>19</option> # <option value="20" <?PHP if($day==20) echo "selected";?>>20</option> # <option value="21" <?PHP if($day==21) echo "selected";?>>21</option> # <option value="22" <?PHP if($day==22) echo "selected";?>>22</option> # <option value="23" <?PHP if($day==23) echo "selected";?>>23</option> # <option value="24" <?PHP if($day==24) echo "selected";?>>24</option> # <option value="25" <?PHP if($day==25) echo "selected";?>>25</option> # <option value="26" <?PHP if($day==26) echo "selected";?>>26</option> # <option value="27" <?PHP if($day==27) echo "selected";?>>27</option> # <option value="28" <?PHP if($day==28) echo "selected";?>>28</option> # <option value="29" <?PHP if($day==29) echo "selected";?>>29</option> # <option value="30" <?PHP if($day==30) echo "selected";?>>30</option> # <option value="31" <?PHP if($day==31) echo "selected";?>>31</option> # </select> # # <select name="year" id="year"> # <?PHP for($i=date("Y"); $i<=date("Y")+2; $i++) # if($year == $i) # echo "<option value='$i' selected>$i</option>"; # else # echo "<option value='$i'>$i</option>"; # ?> # </select>


What should you major in as an undergraduate if you want to restore houses and business buildings?

One good option is architecture.One good option is architecture.One good option is architecture.One good option is architecture.One good option is architecture.One good option is architecture.


What is difference between name and value in an HTML Form?

'Name' can be a field and 'value' can defined to the that particular field. Example: <select name="Car List"> <option value="volvo">Volvo</option> <option value="saab">Saab</option> <option value="mercedes">Mercedes</option> <option value="audi">Audi</option> </select>


What are the differences between option a and option b in terms of their impact on the environment?

Option A has a greater negative impact on the environment compared to Option B.


What is the small circle that selects a single dialog box option?

option button


How is the option premium taxed?

The option premium is taxed as a capital gain when the option is sold or expires.