Management and Organizational Studies 1023A/B Lecture Notes - Lecture 8: Chicago Board Options Exchange, Cash Flow, Shortage

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

Document Summary

Financial derivative securities- derive all or part of their value from another underlying security. Expands investment opportunity, lower cost, increased leverage (for same amount of investment the returns are magnified) Give you the right to do something in the future. Created by investors, sold to other investors. Call: buyer has the right, but not the obligation, to purchase a fixed quantity from the seller at a fixed price up to a certain date. Put: buyer has the right, but not the obligation, to sell a fixed quantity to the seller of the option at a fixed price up to a certain date. We only use them in terms of stock (can also be on bonds, market index, foreign currency, etc. ) Whoever writes/sells the option has to do what the buyer decides. Exercise price/strike price- the per-share price at which common stock may be purchased/sold.