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1、CHAPTER 20,Options Markets:Introduction,20-2,Derivatives are securities that get their value from the price of other securities.Derivatives are contingent claims because their payoffs depend on the value of other securities.Options are traded both on organized exchanges and OTC.,Options,20-3,The Opt
2、ion Contract:Calls,A call option gives its holder the right to buy an asset:At the exercise or strike priceOn or before the expiration dateExercise the option to buy the underlying asset if market value strike.,20-4,The Option Contract:Puts,A put option gives its holder the right to sell an asset:At
3、 the exercise or strike priceOn or before the expiration dateExercise the option to sell the underlying asset if market value strike.,20-5,The Option Contract,The purchase price of the option is called the premium.Sellers(writers)of options receive premium income.If holder exercises the option,the o
4、ption writer must make(call)or take(put)delivery of the underlying asset.,20-6,Example 20.1 Profit and Loss on a Call,A January 2010 call on IBM with an exercise price of$130 was selling on December 2,2009,for$2.18.The option expires on the third Friday of the month,or January 15,2010.If IBM remains
5、 below$130,the call will expire worthless.,20-7,Example 20.1 Profit and Loss on a Call,Suppose IBM sells for$132 on the expiration date.Option value=stock price-exercise price$132-$130=$2Profit=Final value Original investment$2.00-$2.18=-$0.18Option will be exercised to offset loss of premium.Call w
6、ill not be strictly profitable unless IBMs price exceeds$132.18(strike+premium)by expiration.,20-8,Example 20.2 Profit and Loss on a Put,Consider a January 2010 put on IBM with an exercise price of$130,selling on December 2,2009,for$4.79.Option holder can sell a share of IBM for$130 at any time unti
7、l January 15.If IBM goes above$130,the put is worthless.,20-9,Example 20.2 Profit and Loss on a Put,Suppose IBMs price at expiration is$123.Value at expiration=exercise price stock price:$130-$123=$7Investors profit:$7.00-$4.79=$2.21Holding period return=46.1%over 44 days!,20-10,In the Money-exercis
8、e of the option would be profitableCall:exercise price market priceOut of the Money-exercise of the option would not be profitableCall:market price exercise price.At the Money-exercise price and asset price are equal,Market and Exercise Price Relationships,20-11,American-the option can be exercised
9、at any time before expiration or maturityEuropean-the option can only be exercised on the expiration or maturity dateIn the U.S.,most options are American style,except for currency and stock index options.,American vs.European Options,20-12,Stock OptionsIndex OptionsFutures OptionsForeign Currency O
10、ptionsInterest Rate Options,Different Types of Options,20-13,Notation Stock Price=ST Exercise Price=XPayoff to Call Holder(ST-X)if ST X 0if ST XProfit to Call HolderPayoff-Purchase Price,Payoffs and Profits at Expiration-Calls,20-14,Payoff to Call Writer-(ST-X)if ST X 0if ST XProfit to Call WriterPa
11、yoff+Premium,Payoffs and Profits at Expiration-Calls,20-15,Figure 20.2 Payoff and Profit to Call Option at Expiration,20-16,Figure 20.3 Payoff and Profit to Call Writers at Expiration,20-17,Payoffs to Put Holder0if ST X(X-ST)if ST XProfit to Put Holder Payoff-Premium,Payoffs and Profits at Expiratio
12、n-Puts,20-18,Payoffs to Put Writer0if ST X-(X-ST)if ST XProfits to Put WriterPayoff+Premium,Payoffs and Profits at Expiration Puts,20-19,Figure 20.4 Payoff and Profit to Put Option at Expiration,20-20,Option versus Stock Investments,Could a call option strategy be preferable to a direct stock purcha
13、se?Suppose you think a stock,currently selling for$100,will appreciate.A 6-month call costs$10(contract size is 100 shares).You have$10,000 to invest.,20-21,Option versus Stock Investments,Strategy A:Invest entirely in stock.Buy 100 shares,each selling for$100.Strategy B:Invest entirely in at-the-mo
14、ney call options.Buy 1,000 calls,each selling for$10.(This would require 10 contracts,each for 100 shares.)Strategy C:Purchase 100 call options for$1,000.Invest your remaining$9,000 in 6-month T-bills,to earn 3%interest.The bills will be worth$9,270 at expiration.,20-22,InvestmentStrategyInvestmentE
15、quity onlyBuy stock 100100 shares$10,000Options onlyBuy calls 101000 options$10,000LeveragedBuy calls 10100 options$1,000equityBuy T-bills 3%$9,000Yield,Option versus Stock Investment,20-23,Strategy Payoffs,20-24,Figure 20.5 Rate of Return to Three Strategies,20-25,Strategy Conclusions,Figure 20.5 s
16、hows that the all-option portfolio,B,responds more than proportionately to changes in stock value;it is levered.Portfolio C,T-bills plus calls,shows the insurance value of options.C s T-bill position cannot be worth less than$9270.Some return potential is sacrificed to limit downside risk.,20-26,Pro
17、tective Put Conclusions,Puts can be used as insurance against stock price declines.Protective puts lock in a minimum portfolio value.The cost of the insurance is the put premium.Options can be used for risk management,not just for speculation.,20-27,Covered Calls,Purchase stock and write calls again
18、st it.Call writer gives up any stock value above X in return for the initial premium.If you planned to sell the stock when the price rises above X anyway,the call imposes“sell discipline.”,20-28,Table 20.2 Value of a Covered Call Position at Expiration,20-29,Figure 20.8 Value of a Covered Call Posit
19、ion at Expiration,20-30,Straddle,Long straddle:Buy call and put with same exercise price and maturity.The straddle is a bet on volatility.To make a profit,the change in stock price must exceed the cost of both options.You need a strong change in stock price in either direction.The writer of a stradd
20、le is betting the stock price will not change much.,20-31,Table 20.3 Value of a Straddle Position at Option Expiration,20-32,Figure 20.9 Value of a Straddle at Expiration,20-33,Spreads,A spread is a combination of two or more calls(or two or more puts)on the same stock with differing exercise prices
21、 or times to maturity.,Some options are bought,whereas others are sold,or written.A bullish spread is a way to profit from stock price increases.,20-34,Table 20.4 Value of a Bullish Spread Position at Expiration,20-35,Figure 20.10 Value of a Bullish Spread Position at Expiration,20-36,Collars,A coll
22、ar is an options strategy that brackets the value of a portfolio between two bounds.Limit downside risk by selling upside potential.Buy a protective put to limit downside risk of a position.Fund put purchase by writing a covered call.Net outlay for options is approximately zero.,20-37,The call-plus-
23、bond portfolio(on left)must cost the same as the stock-plus-put portfolio(on right):,Put-Call Parity,20-38,Stock Price=110 Call Price=17Put Price=5 Risk Free=5%Maturity=1 yr X=105117 115Since the leveraged equity is less expensive,acquire the low cost alternative and sell the high cost alternative,Put Call Parity-Disequilibrium Example,20-39,Table 20.5 Arbitrage Strategy,20-40,Option-like Securities,Callable BondsConvertible SecuritiesWarrantsCollateralized Loans,
