The short position in a put option has the obligation to buy if the option is exercised.
Question:
Step by Step Answer:
An option buyer pays a premium to acquire certain rights This is the right to sell ...View the full answer
An Introduction to Derivative Securities Financial Markets and Risk Management
ISBN: 978-0393913071
1st edition
Authors: Robert A. Jarrow, Arkadev Chatterjee
Related Video
A put option is a financial contract that gives the owner the right, but not the obligation, to sell an underlying asset, such as a stock or a commodity, at a predetermined price, known as the strike price, on or before a specific date, known as the expiration date. Put options are used by investors as a form of insurance against a decline in the value of the underlying asset. If an investor expects the value of an asset to fall in the future, they can purchase a put option on that asset. If the value of the asset does fall, the put option will increase in value, allowing the investor to sell the asset at the higher strike price. For example, if an investor owns 100 shares of a stock that is currently trading at $50 per share, they may purchase a put option with a strike price of $45 and an expiration date three months in the future. If the stock price falls to $40 before the expiration date, the investor can exercise the put option and sell their shares for $45 each, even though the market price is only $40. This would allow the investor to limit their losses. It\'s important to note that purchasing a put option involves paying a premium to the seller of the option, and the investor can lose the entire premium if the price of the underlying asset does not decline as expected. Put options are just one type of financial derivative and should only be used by experienced investors who understand the risks involved.
Students also viewed these Banking questions
-
Explain what is involved in a put option.
-
Explain the difference between a put option and a short position in a futures contract.
-
A long is generally associated with buying and a short with selling. Is it counterintuitive that the put holder gets the right to sell? Explain your answer.
-
A) Draw the output waveforms and then find the repeated sequence of the following ripple counter [6 mark CLK 1 1 K A A' B J 11 1 B K J K C
-
Refer to the Excel output shown in Exhibit 14.32 above. Is the overall model significant? You will have to estimate the p-value from the tables at the back of the text. Use a 5% level of...
-
Should foreigners have the right to buy U.S. organs and U.S. citizens have the right to buy foreign organs?
-
If for certain paired data \(n=18\) and \(r=0.44\), test the null hypothesis \(ho=0.30\) against the alternative hypothesis \(ho>0.30\) at the 0.01 level of significance.
-
What is meant by the term identity theft? What can happen to a person who is the victim of identity theft?
-
All four officers involved in George Floyd's arrest have now been found guilty on various charges. Derek Chauvin (the man who kneeled on George Floyd's neck) was found guilty of second-degree murder...
-
Contract Sharon Myers, chief finance officer for Sitco Products, convinced the president of the company to enter into a 90-day forward contract to sell 900,000 Swedish kronas as a speculative...
-
Because a call is the right to buy and a put is the right to sell, a long call position will be canceled out by a long put position. Do you agree with this statement? Explain your answer.
-
The following option prices are given for Sun star Inc., whose stock price equals $50.00: Compute intrinsic values for each of these options and identify whether they are in the money, at-the-money,...
-
Why is refinancing often done in conjunction with renovation?
-
Sweetgreen, a farm-to-table salad chain, combines mission and passion to build healthier communities by connecting people to real food. The company is revolutionizing the salad business. Jonathan...
-
SC Johnson, a multi-billion-dollar family-owned business, is a multinational manufacturer of household and professional products. Windex, Pledge, Drano, Scrubbing Bubbles, and Shout are just a few...
-
Not-for-profit organizations have used social media to redefine how they can get funding for their missions. There are some not-for-profits that exist totally online. Check out www.donorschoose.org...
-
How can another countrys cultural and political climate influence a firms efforts to export there?
-
How can businesses encourage employees to make ethical choices?
-
Use positive exponents to rewrite. V2x
-
Annual dividends of ATTA Corp grew from $0.96 in 2005 to $1.76 in 2017. What was the annual growth rate?
-
In late 2007, Radiohead released its album In Rainbows for downloading directly from its Web site. The band adopted an unusual pricing strategy: Let each consumer decide how much to pay. This looks...
-
1. For a monopolist, marginal revenue is ___________ (greater/less) than price. 2. A monopoly that cuts its price gains revenue from its ________customers but loses revenue from its...
-
1. Book Pricing: Publishers versus Authors. Consider the problem of setting a price for a book. The marginal cost of production is constant at $20 per book. The publisher knows from experience that...
-
What is typically not available for entry by an employee in an HRIS employee self-service application?
-
Paid Phoenix Insurance $50 for February renters insurance using company VISA credit card. Record as Renter Insurance Expense. What are the Accounts and Amounts Debited? What are the Accounts and...
-
Discuss employers' responsibilities for reporting workplace incidents that result in serious injury or illness. Include in your discussion the time frames for this reporting, whether or not you...
Study smarter with the SolutionInn App