Category Archives: OPTION VALUATION

Gain or Loss

Gain or Loss Assuming no transaction costs the purchase of call option primarily requires the payment of premium to the option writer. Assuming premium (P) paid is Rs 5 per share, the gain (G) to the call-holder of Reliance (assuming 51 = Rs 140) will he reduced by the amount of Pas shown by Equation 5.2 G= Max (S1 - E. 0) - P =  (Rs 140 - Rs 125) - Rs 5 = Rs 10 In case the value of the share is Rs 120, the los

Call Option (Example)

EXAMPLE Suppose the market price of equity share of Reliance on the expiration date is Rs 140 and the exercise price is Rs 125. The value of call option is Rs 15 (Rs 140 - Rs 125). In case, the value of the share on expiration date turns out to be Rs 120,the value of C1 would not be negative Rs 5 (Rs 120 - Rs 125); it would be zero as the investor would not purchase shares at Rs 125 which is available in the m

Call Option (European)

Call Option In contrast, European options can be exercised only on the maturity date. Since American options provide the owner an additional timing option (to exercise early), they cannot be less valuable than equivalent European options. Given the fact that European options are easier to analyse than American options, and properties of an American option are frequently deduced from those of its European counte

Call Option (American)

Call Option An American call option is a contract that gives the holder the right but not the obligation to buy (i.e., to call in) specified securities at a specified price on or before a specified exercise date. For instance, if an investor buys one call option (normally consisting of 100 shares) on Reliance, he has the right to buy 100 equity shares of Reliance at a specified exercise price anytime between to


OPTION: CONCEPT AND TYPES Concept An option belongs to the family of derivative securities. It is a contract that confers the right to its owner/holder but nor the obligation to buy or sell a specified security at a specified price on or' before a given date. Options are a special type of financial contracts in that the buyer of the option has the right to buy or sell the securities hut is under no obligation to


OPTION VALUATION INTRODUCTION We should keep our options open is the phrase preferred in our day-to-day life. The reason is option brings privileged position to its holder by providing him discretion to use it if he so desires. In finance, an option entitles its holder to buy or sell an asset at a specified (predetermined fixed) price on or before a specified date. Although the concept is generic option is more