Tài chính doanh nghiệp - Chapter 20: Options markets: introduction

Chapter 20Options Markets: IntroductionBuy - Long Sell - ShortCallPut Key ElementsExercise or Strike PricePremium or PriceMaturity or ExpirationOption TerminologyIn the Money - exercise of the option would be profitable. Call: market price>exercise price Put: exercise price>market priceOut of the Money - exercise of the option would not be profitable. Call: market priceX 0 if ST X 0 if ST X (X - ST) if ST X -(X - ST) if ST XStock ST ST Put X - ST 0Protective Put ProfitSTProfit -PStockProtective Put PortfolioCovered CallUse - Some downside protection at the expense of giving up gain potential.Position - Own the stock and write a call.Payoff ST XStock ST ST Call 0 - ( ST - X)Covered Call ProfitSTProfit -PStockCovered Call PortfolioStraddle (Same Exercise Price) Long Call and Long PutSpreads - A combination of two or more call options or put options on the same asset with differing exercise prices or times to expiration. Vertical or money spread: Same maturity Different exercise price Horizontal or time spread: Different maturity datesOption Strategies ST X Payoff for Call Owned 0 ST - X Payoff for Put Written -( X -ST) 0 Total Payoff ST - X ST - XPut-Call Parity RelationshipLong CallShort PutPayoffStock PriceCombined =Leveraged EquityPayoff of Long Call & Short PutSince the payoff on a combination of a long call and a short put are equivalent to leveraged equity, the prices must be equal. C - P = S0 - X / (1 + rf)TIf the prices are not equal arbitrage will be possible.Arbitrage & Put Call ParityStock Price = 110 Call Price = 17Put Price = 5 Risk Free = 10.25%Maturity = .5 yr X = 105 C - P > S0 - X / (1 + rf)T 17- 5 > 110 - (105/1.05) 12 > 10Since the leveraged equity is less expensive, acquire the low cost alternative and sell the high cost alternative.Put Call Parity - Disequilibrium ExamplePut-Call Parity Arbitrage Immediate Cashflow in Six MonthsPosition Cashflow ST 105 Buy Stock -110 ST STBorrowX/(1+r)T = 100 +100 -105 -105Sell Call +17 0 -(ST-105)Buy Put -5 105-ST 0Total 2 0 0Optionlike SecuritiesCallable BondsConvertible SecuritiesWarrantsCollateralized LoansExotic OptionsAsian OptionsBarrier OptionsLookback OptionsCurrency Translated OptionsBinary Options