Options Flashcards
What is an option?
An option is the right, but not the obligation to buy or sell something at a pre determined price in a specified time period
How can a commodity be traded?
In stocks, property or futures contracts
Ags options…
Give the buyer the right but not obligation to buy ro sell a commodity
The option seller is obligated by the same agreement….
…. To buy or sell the commodity stated in the contract at a certain price if the option is exercised
What is a put option?
A put option gives the option buyer the right to sell the underlying commodity
What is a call option?
A call option gives the option buyer the right to buy the underlying commodity
What is the underlying commodity in the case of options on futures?
A futures contract
Put options and call options are….
Distinct contracts. Not same sides of transaction.
What is option expiration?
The date the option expires (you have 6 months to decide if you want to buy it, its expiration is in 6 months)
What is option premium?
Option premium is the cost of the option. Eg. If you pay €5 per acre of land, it’s for the right to pay €455 per acre if you decide you want it by the expiration
What is the strike price of the call option?
The strike price is the price you will pay if you eventually go through with the option. You have the right but are not obligated to pay the strike price
If you decide not to us the call option you….
Let the option expire
Give an example of a put option
You could buy a put option to sell dildos at €5 per dildo. The strike price is €5. If when selling the price was at €4 a dildo you would certainly exercise your right to sell at €5. You would not if they were selling at €9.
What is the premium?
The cost for marketplace flexibility, or, the cost of the option
