Chap 25 Flashcards
Option
A contract that gives its owner the right to buy or sell an asset at a cretain price before or on a given date
Exercising an Option
Act of buying or selling the underlying asset via the option contract
Striking price / Exercise price
The fixed price in the option contract at which the holder can buy the underlying asset
American Option
An option that can be exercised at any time before its expiration date
European Option
An option that can be exercised only on the expiration date
Call Option
The right to buy an asset at a fixed price during a particular period of time
Put Option
The right to sell an asset at a fixed price during a particular period of time
Intrinsic Value
The lower bond of an option value or what the option would be worth if it were about to expire
Employee Stock Option
Option granted to an employee by a company giving the employee the right to buy shares of stock in the company at a fixed price for a fixed time
Warrant
A security that gives the holder the right to purchase shares of stock at a fixed price over a given period of time
Sweeteners or equity kickers
A feature included in the new issue of debt or preferred stock to make the issue more attractive to initial investors
Convertible bond
a bond that can be exchanged for a fixed # of shares of stock for a specified amount of time
Conversion price
The dollar amount of a bond’s par value that is exchangeable for one share of stock
Conversion Ratio
of shares per bond received for the conversion into stock
Streight bond value
The value of a convertible bond if it could not be converted into common stock
Conversion Value
The value of a convertible bond if it was immediately converted into stock
Real Option
An option with payoff in real goods
