RSM230H1 Chapter Notes - Chapter 10: Covered Call, Arbitrage, Call Option
Document Summary
Derivatives - derive their value from the price of another underlying asset i. e. stock, stock or bond index, commodity price, etc. Trade on the exchange and the over-the-counter (otc) market. Not issued by company as form of capital. Buyer pays premium or fee for certain rights. Each contracts is for 100 underlying shares therefore, quoted price is in hundreds ( = cost of purchasing option) Seller / writer obligated when buyer exercises certain rights as outlined in contract. Expiration or expiry date - date at which the option contract expires. Exercise or strike price - price at which underlying security may be bought when call option used or sold when put option used. Contracts that obligate both parties to exchange a certain quantity of an underlying asset at a specified future point in time at a predetermined price. Used by corporations, and financial institutions corporations institutions. Commodities i. e. wheat, forest products, industrial metals, energy products,etc.
