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AG313 > Stock Options Properties > Flashcards

Stock Options Properties Flashcards

1
Q

Stock Price Increase

A

Causes calls to increase and puts to decline

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2
Q

Strike Price Increase

A

Causes puts to increase and calls to decline

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3
Q

Volatility Increase

A

Increases the value of all options

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4
Q

Dividends Increase

A

Causes puts to increase and calls to decrease in value

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5
Q

Time to Maturity Increase

A

European options usually increase in value, but not always

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5
Q

Interest Rates Increase

A

Causes calls to increase and puts to decrease in value

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5
Q

Lower Bound Calculation (Call Option)

A

S0 − Ke-rT

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5
Q

Lower Bound Calculation (Put Option)

A

Ke-rT − S0

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5
Q

Intrinsic Value of an Option

A

The value it would have if the owner had to exercise it immediately or not at all

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5
Q

Put-Call Parity Result (Non-dividend-paying stock)

A

The European put price plus the stock price must equal the European call price plus the present value of the strike price

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5
Q

Volatility Decrease

A

Makes the option more likely to be exercised early

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5
Q

American Call Option Exercise

A

Should never be exercised early when no dividends are expected

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5
Q

Put-Call Parity Adjustment (Dividends Expected)

A

The basic put-call parity formula can be adjusted by subtracting the present value of expected dividends from the stock price

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6
Q

Price of European Put Option Calculation

A

c+Ke-rT=p+S0˗D

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7
Q

Effect of Volatility Increase on Put Price

A

Put price increases by the same amount as the call price

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8
Q

Stock Price, Call, and Put Relationship

A

No mispricing when interest rates are zero

9
Q

American Options and Put-Call Parity

A

Provides an upper and a lower bound for the difference between call and put prices

10
Q

Creating Long Position in European Put Option

A

Buy a call on the stock and short the stock

AG313 (12 decks)

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