Management and Organizational Studies 1023A/B Lecture Notes - Lecture 9: Option Style, Chicago Board Options Exchange, Montreal Exchange

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 1023A/B
• Professor: Christina Maco

Document Summary

Financial derivative securities: derive all or part of their value from another (underlying) security. If share price goes up on shares, if you own the options, then your potential gains are much greater (also riskier) Options are created by investors, sold to other investors. The right to buy and receive shares at a specified price. Call: buyer has the right, but not the obligation, to purchase a fixed quantity from the seller (writer) at a fixed price up to a certain date (buying normal stock = betting for your choice) Put: buyer has the right, but not the obligation, to sell a fixed quantity to the seller (writer) at a fixed price up to a certain date (its like shorting stock = betting against the market) Call: writer ------> buyer (right to buy shares) Put: buyer ------> writer (right to sell shares) Exercise (strike price): the per-share price at which the common stock may be purchased or sold.