Options are derivative instruments, meaning that their prices are derived from the price of their underlying security, which could be almost anything: stocks, bonds, currencies, indexes, commodities, etc. Many options are created in a standardized form and traded on an options exchange like the Ch...
If the option is “in-the-money” prior to expiration – meaning the underlying stock price has risen to a point above the strike price of the option – then the buyer will profit by the difference between the option strike price and the actual stock price, multiplied by the number of sh...
price in case the price of corn declines. This will limit his/her risk: if the price of corn falls, the investor has the option to sell at a high price, and, if the price of corn rises (especially higher than the strike price of the option), then he/she will choose not to ...
If, at expiration, the price of the underlying asset is greater than the strike price, the buyer makes money by exercising the option and effectively buying the shares at a discount (or by selling the contract to another investor). On the other hand, the buyer is not obligated to buy the...
Fat-Tailed Distributions: Option pricing models usually assume that stock price movements follow a log-normal distribution, implying that extreme events have very low probabilities. However, empirical data often reveals that stock returns exhibit “fat tails,” meaning that extreme events occur more fre...
When the volatility of the underlying decreases, the value of the option also decreases, meaning that the upper payoff value of the hedge portfolio combining them declines. However, the lower payoff value remains at zero.【释义】最初,看涨期权的行权价与标的资产市场价格相等,二叉树模型假设资产的...
Call options allows the investor to buy a stock at a specific price (strike price) on or before the option contract hits its expiration date. A put option allows the investor to sell a stock at a given price over a specific time period. Additional meaning of Plain Vanilla Option: Plain...
Gold options are financial derivatives that provide the right, but not the obligation, to buy or sell gold at a predetermined price (strike price) within a specified period of time (expiry date). Gold options can be used for various purposes, such as hedging against price fluctuations, specula...
You might choose to sell your option at a profit or exercise the option and buy the shares at the strike price. But if the stock price at expiration is less than the strike price, the option will be worthless. The amount you lose, in that case, is the premium you paid to buy the ...
(finance) A contract giving the holder the right to buy or sell an asset at a set strike price; can apply to financial market transactions, or to ordinary transactions for tangible assets such as a residence or automobile. To purchase an option on something. noun One of the choices whic...