Lab - Options, Puts, & Market Sentiment Flashcards
What is a European call option?
It gives the holder the RIGHT to buy the underlying security for a prescribed price on a prescribed day
What is a European put option?
gives the holder the RIGHT to sell the underlying security for a prescribed price on a prescribed date
What is the difference between an American option and a European Option?
American options are permitted to be exercised at any time during the life of the option (call or put)
European options are only permitted to be exercised on the last day of the option.
What is a “underlying security”?
the specific security on which the option contract is based
What is the strike/exercise price?
the pre-specified price at which the underlying security can be bought (sold) by the holder of a call (put) if they exercise their right against the writer
What is the expiration date?
The last day an option exists.
For listed stock options, its the third friday of the month
What is the writer’s role?
They are the one who sells the option
What position does the seller take on the option when they write it?
They take a short position
What is the holder’s role of an option?
They are the buyer of the option
What position does the holder take on an option?
They take the long position
the values of all of the calls in the world (short and long) equals what?
= 0
It is a zero-sum game
