AFM121 Chapter Notes - Chapter 10: Call Option, Bond Option, Credit Risk

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM121
• Professor: John D' Amato

Document Summary

Obligate both parties to exchange a certain quantity of an underlying asset at a specified future point in time at a predetermined price. Wheat, corn, soybeans, canola, livestock, food products, forest products, precious and industrial metals, energy product: financials. Issues and guarantees all equity, bond, and stock index option positions: opening position is when an investor initially buys or sells option contracts, buying the option(s) is a long position, selling is a short position. Submitting an exercise notice to the clearing corporation: the exercise is assigned to a member firm and then assigned to one of its accounts, buyer can let the option expire. Selling the stock for what they paid plus premium. If the share price declines, the writer lowers their purchase price: call options are, original purchase price premium received. in-the-money - price of the underlying security (p0) is greater than the strike price (s)