Management and Organizational Studies 1023A/B Chapter Notes - Chapter 9: Forego, Earnest Payment, Futures Exchange

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

Document Summary

Investors purchase puts if they expect the stock price to fall, because the value of the put will rise as the stock price declines. If an option expires worthless, the most the buyer can lose is the cost (price) of the option: options provide leverage by magnifying the percentage gains in relation to buying or short selling the underlying stock. In fact, options can provide greater leverage potential than fully margined stock transactions: using options on a market index allows an investor to participate in market movements with a single trading decision. In the case of the call, two other course of action are possible in addition to using the put. The options exchange: most exchange listed equity options are american style, which can be exercised at any time up to and including the expiration date. Investors wishing to exercise their options inform their brokers, who turn to the cdcc to exercise notice and this process is irrevocable.