Management and Organizational Studies 1023A/B Chapter Notes - Chapter 9: Futures Exchange, Futures Contract, Montreal Exchange

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

Document Summary

Options: an option givens the holder the right to receive or deliver shares of stock under specified conditions, an option need not be exercised. Investors purchase puts if they expect the stock price to fall. Why options markets: puts and calls expand the opportunity set available to investors, making available risk-return combinations that otherwise would be impossible or that improve the risk-return characteristics of a portfolio, ex: investing in both puts and calls. In the case of a call, the investor can control a claim on the underlying common stock for a much smaller investment than required to buy the stock itself. Investors can participate in market movements with a single trading decision. It is usually used as a measure of liquidity, along with the volume of trading: long-term options (leaps) options on individual stocks with maturities greater than one year.