1 / 9

2.5 Derivative Markets

2.5 Derivative Markets. Derivative Asset/Contingent Claim Security with payoff that depends on the price of other securities Listed Call Option Right to buy an asset at a specified price on or before a specified expiration date Listed Put Option

rune
Download Presentation

2.5 Derivative Markets

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. 2.5 Derivative Markets • Derivative Asset/Contingent Claim • Security with payoff that depends on the price of other securities • Listed Call Option • Right to buy an asset at a specified price on or before a specified expiration date • Listed Put Option • Right to sell an asset at a specified exercise price on or before a specified expiration date

  2. Figure 2.9 Stock Options on Apple

  3. 2.5 Derivative Markets • Using the Stock Options on Apple • The right to buy 100 shares of stock at a stock price of $355 using the July contract would cost $560 (ignoring commissions) • Is this contract “in the money”? • When should you buy this contract? • Stock price was equal to $357.20; you will make money if stock price increases above $357.20 + $5.60 = $362.80 by contract expiration

  4. 2.5 Derivative Markets • Using the Stock Options on Apple • The right to buy 100 shares of stock at a stock price of $355 using the July contract would cost $90 (ignoring commissions) • Is this contract “in the money”? • Why do the two option prices differ?

  5. 2.5 Derivative Markets • Using the Stock Options on Apple • Look at Figure 2.9 to answer the following questions • How does the exercise or strike price affect the value of a call option? A put option? Why? • How does a greater time to contract expiration affect the value of a call option? A put option? Why? • How is “volume” different from “open interest”?

  6. 2.5 Derivative Markets • Futures Contracts • Purchaser (long) buys specified quantity at contract expiration for set price • Contract seller (short) delivers underlying commodity at contract expiration for agreed-upon price • Futures: Future commitment to buy/sell at preset price • Options: Holder has future right to buy/sell

  7. Figure 2.10 Futures Contracts • Corn futures prices in the Chicago Board of Trade, July 8, 2011

  8. 2.5 Derivative Markets • Corn futures prices in the Chicago Board of Trade, July 8, 2011 • Contract size: 5,000 bushels of corn • Price quote for Dec. 12 contract: 614’0 translates to a price of $6.14 + 0/8 cent per bushel, or $6.14 • If you bought the Dec. 12 contract, what are you agreeing to do? • Purchase 5,000 bushels of corn in December for 5,000 × $6.14 = $30,700 • What is your obligation if you sell the Dec. 12 contract? • How does this contract differ from an option?

  9. 2.5 Derivative Markets Derivatives Securities Futures Basic Positions Long (Buy/Sell?) Short (Buy/Sell?) Terms Delivery date Deliverable item • Options • Basic Positions • Call (Buy/Sell?) • Put (Buy/Sell?) • Terms • Exercise price • Expiration date

More Related