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Options

  • Harry Georgakopoulos
Chapter
  • 825 Downloads

Abstract

Options are tradable derivate contracts that “derive” their value from other underlying instruments. Wikipedia defines these instruments as follows: “An Option is a contract which gives the buyer (the owner) the right, but not the obligation, to buy or sell an underlying asset or instrument at a specified strike price on or before a specified date [130].” They are similar to futures contracts in that they provide a mechanism to purchase or sell a certain physical or financial asset sometime in the future at a price that is known in the present.Whereas futures obligate the contract holder to purchase or sell the underlying asset at the agreed-upon price, options provide the “option” to purchase or sell the underlying asset at the agreed-upon price. This added flexibility or optionality comes at a premium. No upfront exchange of funds is required in order for the buyer and seller to enter into a futures contract. To buy an options contract, however, the buyer has to pay a premium. Similarly, the person selling the option contract gets to collect the premium.

Keywords

Option Price Implied Volatility Future Contract Strike Price Underlying Asset 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Folk Creations, Inc. 2015

Authors and Affiliations

  • Harry Georgakopoulos

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