Chapter 11

Question 1

Premium Value = intrinsic value + speculative value

what are intrinsic value and speculative value?

Answer 1

Intrinsic Value - Value you can get by immediately exercising the option.

Speculative Value - Difference between the market price of the option and the intrinsic value.

Question 2

American vs European Call option

Answer 2

American - Exercisable any time up until exercise date.

European - Exercisable only on the exercise date.

Question 3

Options expiration date

Answer 3

The expiration date is the Saturday following the third Friday of the stated month in the standard stock options contract.

Question 4

Call, Put, Long, Short

Answer 4

Call - Option of buying x number of shares at a specific price before a specific date.

Put - Option to sell x no of shares at a specific price before a specific date.

Long - You own the option (buy option)

Short - Writer of the option.