Chapter 12

Options

Abstract

Options are nonlinear derivatives which give the buyer certain rights. A buyer of call options has the right but not the obligation to own the underlying asset at a specified or “strike” price. The seller or short is under the obligation to sell the underlying asset at the strike price to the buyer. The buyer must pay a “premium” to the seller. Options are traded on individual equities, equity indexes, bonds, currencies, and commodities. The basic option types are puts and calls. The four basic option strategies are: Long call, long put, short call, and short put. By combining the basic option strategies, investors and traders can tailor a derivative strategy to flexibly accomplish many different objectives. Black–Scholes–Merton ...

Get Fintech and the Remaking of Financial Institutions now with the O’Reilly learning platform.

O’Reilly members experience live online training, plus books, videos, and digital content from nearly 200 publishers.