Thị trường tài chính và các định chế tài chính_ Chapter 14

1 Chapter 14 Options Markets Financial Markets and Institutions, 7e, Jeff Madura Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. 2 Chapter Outline  Background on options  Speculating with stock options  Determinants of stock option premiums  Explaining changes in option premiums  Hedging with stock options  Using options to measure a stock’s risk 3 Chapter Outline (cont’d)  Options on ETFs and stock indexes  Options on futures contracts  Hedging with options on futures  Institutional use of options markets  Globalization of options markets 4 Background on Options  A call option grants the owner the right to purchase a specified financial instrument for a specified price (exercise or strike price) within a specified period of time  Grants the right, but not the obligation, to purchase the specified investment  The writer of a call option is obligated to provide the instrument at the price specified by the option contract if the owner exercises the option  A call option is:  In the money when the market price of the underlying security exceeds the strike price  At the money when the market price is equal to the strike price  Out of the money when the market price is below the strike price 5 Background on Options (cont’d)  A put option grants the owner the right to sell a specified financial instrument for a specified price within a specified period of time  Grants the right, but not the obligation, to sell the specified investment  A put option is:  In the money when the market price of the underlying security is below the strike price  At the money when the market price is equal to the strike price  Out of the money when the market price is above the strike price 6 Background on Options (cont’d)  Call and put options specify 100 shares for stocks  Premiums paid for call and put options are determined through open outcry on the exchange floor  Participants can close out their option positions by taking an offsetting position  The gain or loss is determined by the premium paid when purchasing the option and the premium received when selling the option  American-style options can be exercised at any time prior to expiration  European-style options can be exercise only just before expiration 7 Background on Options (cont’d)  Markets used to trade options  The CBOE:  Is the most important exchange for trading options  Serves as the market for options on more than 1,500 different stocks  Lists standardized options  Accounts for about 51 percent of all option trading  Options are also traded on the AMEX, Philadelphia Stock Exchange, Pacific Stock Exchange, and the International Securities Exchange 8 Background on Options (cont’d)  Markets used to trade options (cont’d)  Listing requirements  Each exchange has its own requirements  One key requirement is a minimum trading volume of the underlying stocks  Role of the Options Clearing Corporation (OCC)  The OCC serves as a guarantor on option contracts traded in the U.S.  Regulation of options trading  The SEC and the various option exchanges regulate option trading  Regulations:  Are intended to ensure fair and orderly training  Attempt to prevent insider trading  Attempt to prevent price fixing among floor brokers 9 Background on Options (cont’d)  How option trades are executed  Floor brokers execute transactions desired by investors  Some orders are executed electronically without a floor broker  Market-makers:  Can execute stock option transactions for customers  Trade options on their own account  May facilitate a buy order for one customer and a sell order for a different customer  Earn the difference between the bid price and the ask price for the option 10 Background on Options (cont’d)  Types of orders  A market order results in the immediate purchase or sale of an option at the prevailing market price  With a limit order, the transaction will occur only if the market price is no higher or lower than a specified price limit  Online trading  Many online brokerage firms, like E*Trade and Datek, facilitate options orders [...]... rises to $97 prior to the option’s expiration date If Pete exercises the option and immediately sells the shares in the market, what is his ?net gain from the transaction $97 − $92 − $4 = $1 per share 14 Speculating with Call Options (cont’d) Draw the contingency graph for the buyer of the call option and the writer of the call option Buyer’s Perspective Profit 0 -4 96 Writer’s Perspective 4 0 Stock . 1 Chapter 14 Options Markets Financial Markets and Institutions, 7e, Jeff Madura Copyright. ©2006 by South-Western, a division of Thomson Learning. All rights reserved. 2 Chapter Outline  Background on options  Speculating with stock options  Determinants