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Are you sure you want to Yes No. Jining Wang , Embeds 0 No embeds. No notes for slide. Options and futures markets 1 2 1. Rafi Eldor Introduction What is a Derivative? Rafi Eldor Introduction What is an Underlying? The underlying is the asset whose value serves as the reference for the derivatives price There are many types of Underlings out there, for example: Rafi Eldor Introduction Derivatives markets in numbers 6. Construction company offers the following option: What is the break-even point?

Yes, the premium was already paid, since option payout is positive the investor will exercise the option. Rafi Eldor Terminology Explanation Underlying asset The underlying is the asset that must be delivered if the contract is exercised Strike price The strike price is the price at which the options holder has the right to buy or sell the underlying asset Expiration Date The last date on which the rights attached to an option may be exercised Premium The price of the option that the options holder pays Call Option — Definition The buyer of a Call option has the right to buy a predetermined amount of the underling asset notional at a given price during specific period or at a particular point in time against payment of premium Call Option Fundamentals Rafi Eldor Few Comments: Call Option Fundamentals Rafi Eldor Settlement Arrangements o Delivery — Physical delivery of the underlying asset o Cash Settlement — the holder of the option receives the difference between strike price and the underlying asset price Put option or the difference between the underlying asset price and the strike price Call Option Call Option Fundamentals Call Option Fundamentals 4.

Rafi Eldor Different exercise prices Moneyness Moneyness: Rafi Eldor Put Option Definition: The buyer of a Put option long Put has the right but not the obligation to Sell a predetermined amount of the underling asset notional at a given price during specific period or at a particular point in time against payment of premium Comments: Put Option Fundamentals Rafi Eldor Selling a Put Option: Rafi Eldor Moneyness for Put Option: Put Option Fundamentals 3.

Rafi Eldor Straddle A straddle is a vanilla strategy, it can be either of the following: Buying a Straddle Buying a Call option and buying a Put option, both with the same strike, expiration date and notional amount. Selling a Straddle Selling a Call option and selling a Put option, both with the same strike, expiration date and notional amount.

Rafi Eldor Straddle Long Straddle Buying a Straddle Long Straddle For an investor who wants to profit from a volatile market Buy a Call option and a Put option with the same strikes, same notional amount and for the same expiration date For example: Long Call and Put strike 4. Rafi Eldor Long Straddle If we look between 3. Rafi Eldor Straddle Selling a Straddle Short Straddle For an investor who wants to profit from a stable market Sell a Call option and a Put option with the same strikes, same notional and for the same expiration date For example: Rafi Eldor Strangle Strangle A strangle is a vanilla strategy.

It can be either of the following: Long Strangle Buying the Strangle. This involves buying a call option and buying a put option, both with different strikes but with the same expiration date and notional amount. Short Strangle Selling the strangle. This involves selling a call option and selling a put option, both with different strikes but with the same expiry date and notional. Rafi Eldor Strangle Strangle Why buy a strangle? Like the straddle, the long strangle position expresses a view that the prices will move in which direction is irrelevant.

However, because the price needs to move further than with a straddle the strangle is cheaper. Strangles are commonly described as 25 delta, 15 delta and so on, volatility quotes for strangles are used as benchmarks to create a volatility surface we will discuss that later in the course. A Vanilla Strategy combined from long position on a Call option and short position on a Put option or vice versa , both options with the same expiration day and with the same notional amount Long Risk Reversal - Buy Call and sell Put with different strikes Short Risk Reversal — Sell Call and buy Put with different strikes Hedge — the buyer of the Risk Reversal can hedge himself from a higher spot rate.

Lower cost — buying a Risk Reversal is cheaper than just buying a Call option. Start clipping No thanks. You just clipped your first slide! Clipping is a handy way to collect important slides you want to go back to later. Now customize the name of a clipboard to store your clips. Visibility Others can see my Clipboard.

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