MATBUS470 Lecture Notes - Lecture 2: Option Style, Call Option, Long-Term Capital Management
13 Mar 2018
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Long position agrees to buy the asset at the delivery date at the forward price pro t. Call option (european: only exericise at the maturity time, for american option, you can exercise earlier) Gives the holder the right to buy the underlying asset at the maturity date for the strike price. Taking risk, betting on the direction of the market. An investor with feels that a stock"s price will increase over the next 2 months. The current stock price is and the price of a 2 month call option with a strike price of is . What are alternative strategies: could buy 100 shares. Stock price in 2 months only if you are really con dent it will rise above . 5. Break even point at 23. 5 (22. 5 + 1) Consumption asset, you can eat or use it. Pro ts / losses are realized throughout the life of the contract (day by day)
