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Financial Management by Sheeba Kapil

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11

Understanding Options

“Handle speculation like a business, not like a gamble. Never get on a roller-coaster that leaves full and comes back half-empty.”

 

W. D. Gann

LEARNING OBJECTIVES

After reading this chapter, you should be able to:

  1. Define options and discuss the various types of options and their payoffs.

  2. Understand the option premium and factors that affect option price and option Greeks.

  3. Discuss the binomial and Black–Scholes model of option pricing.

  4. Analyse various option-trading strategies and option combinations.

  5. Trace the development of option trading in India.

  6. Understand how to read option contract and option trading table.

  7. Identify the major players in the options market.

  8. Discuss the factors that affect option prices.

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