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12 Cards in this Set
- Front
- Back
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Call Intrinsic Value ?
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Call Intrinsic Value=
Max (S - X, 0) At any given time the intrinsic value of a call Option is the price of the underlying asset less the strike price of the option, if the asset price is over the strike price. Otherwise the intrinsic value is zero |
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Put Intrinsic Value ?
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Put Intrinsic Value =
Max (X -S, 0) At any given time the intrinsic value of a put Option 15 the strike priCe of the Option less the price of the underlying asset, if the asset price is below the strike price. Otherwise the intrinsic vaue is zero. |
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minimum/maximum value of the European Call option
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Max. =S
Min. Max[O;S - X/(1+r)^t] |
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minimum/maximum value of the European Put option
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Max. =X/(1+r)^t
Min. Max[O; X/(1+r)^t - S] |
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What is the lower bound for the price of a eight-month out-of-themoney European call option with a strike price of $20 on a nondividend paying stock. The current stock price is $19.5 and the riskfree interest rate amounts to 4%.
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$ 0.016
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Maximum/Minimum American call vaIue ?
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Max. = S
Min. = Max[0;S-X/(1+r)^t] |
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Maximum/Minimum American put vaIue ?
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Max. = X
Min. = Max[0;X-S] |
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Long term American Put v/s Short term American Put ?
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Additional time to expiration increases the opportunity that the option has to move in-to-the money or out-of-the money.The Option payoff
increases as the Option moves deeper in-the-money while the payoff can never go below zero if the Option moves deeper out-of-the money. Thus, with unlimited upside and Iimited downside, the price of an Option generally increases as its time to expiration goes up. |
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Long term European Put v/s Short term European Put ?
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There is an exception to this rule: The value of a long-term European. put could be less than the value of a short-term European put because if the price of the underlying asset goes to zero, the holder of a long-term put must wait longer to receive cash than the holder of the short-term put. In such a case the time value of money would dictate that the short-term put holder will receive the exercise price earlier and will be able to begin earning interest sooner.
A long-term American put is never worth less than a short-term American put due to the early exercise feature. |
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put-caII-parity ?
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The prices of puts and calls with the same expiration, underlying asset, and strike price are related to each other. This relationship can be
showed with the put-caII-parity: S + p =c + X/(1+r)^t |
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A call Option has an exercise price of $200 and a maturity of 170 days. The call premium amounts to $12. The corresponding put option with same strike price and the same expiration date costs $3. The stock is currently traded at $202. The annual risk free rate is 5%. Compute the put-call parity and identify a possible arbitrage strategy!
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Fiducery Call is Over valued and Protectetive Put is under valued.
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A trader owns a stock of company B Stock of company B is currently trading at $40
Strike price tor a call option is $45 Call premium is $5 Calculate the profit or loss when the stock goes up to $43 resp. to $47 or falls to $38 for the owner of this covered call strategy! |
$8, $10, $3
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