FIN 380 Chapter 5: FIN380 CH5
Document Summary
Option - a contract that gives its holder the right to buy or sell an asset at some predetermined price within a specified period of time. Strike price - the price stated in the option contract at which the security can be bought (or sold). Exercise price - the price stated in the option contract at which the security can be bought (or sold). Expiration date - the date after which an option may no longer be exercised. In the u. s. many options expire on the saturday following the third friday of the expiration month. American option - an option that may be exercised any time up until its expiration date. European option - an option that may only be exercised on its expiration date. Stock price > strike price = in the money. Stock price < strike price = out of the money. Exercise value = max [current price of the stock strike price, 0]
