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Derivatives and Risk Management by Sundaram Janakiramanan

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12

Call and Put Options

LEARNING OBJECTIVES

After completing this chapter, you will be able to answer the following questions:

  • What are call options?

  • What is meant by the in-the-money value and the time value of a call option?

  • Would an American call option be exercised before maturity?

  • When would a trader buy or write a call option?

  • What are put options?

  • What is meant by the in-the-money value and the time value of a put option?

  • Would an American put option be exercised before maturity?

  • When would a trader buy or write a put option?

 

BOX 12.1 Government Uses a “Call Option” to Buy Wheat

In April 2008, STC entered into an agreement on behalf of the Government of India to purchase a call option on 180,000 MT of wheat from Cargill International ...

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