Finance and capital markets
- American call options
- Basic shorting
- American put options
- Call option as leverage
- Put vs. short and leverage
- Call payoff diagram
- Put payoff diagram
- Put as insurance
- Put-call parity
- Long straddle
- Put writer payoff diagrams
- Call writer payoff diagram
- Arbitrage basics
- Put-call parity arbitrage I
- Put-call parity arbitrage II
- Put-call parity clarification
- Actual option quotes
- Option expiration and price
In this video we use some examples of actual option quotes to better understand options as a financial derivative. Created by Sal Khan.
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- Do we use 1 option to buy just 1 share of the company or can we exercise a single call option and buy multiple shares at the strike price?(4 votes)
- The quoted price is on a per share basis. Each contract would cost the quoted price x 100 + commissions. so if you wanted to buy 10 call contracts at $9.90 it would cost you $9.90 x 1000 (10 contracts of 100 shares), or $9900.(8 votes)
- When you have an option in the money what are your options as you approach the expiration date. Can you sell your rights to the option for a profit if you don't have the funds to purchase 100 shares of the stock.(4 votes)
- If you buy a call option and then subsequently excercise the call option, are you always transacting with the original person who wrote the call option? Thus,if you make money on the call, does this money come from the person who originally wrote the call option?(1 vote)
- When you're dealing with exchange traded options, the clearinghouse is really who you transact with when you exercise an option.
If you exercise an option, but the option writer defaults, you will still get your money and/or stock. Exchange traded options are guaranteed by the clearinghouse so they have no risk of the counter-party defaulting. If the writer can't pay you either your broker or the clearinghouse will pay you. The clearinghouse is essentially the buyer for every seller and the seller for every buyer.
Over the counter options do not work like this and you have the risk that if the option writer defaults and you exercise the option, you won't be paid.(2 votes)
- So around1:47if we exercise the call to buy GE stock, and the volume goes down to 398, are we buying one GE stock for $14? About2:17where starts talking about exercising call to buy GE for $17, and immediately sell stock for $18.95, isn't Sal assuming someone wants to buy GE stock right away? Ignoring fees, wouldn't he have to buy the call for the last trading price at $2.28 so there is not profit? How much are trading or commission fees in general if we include fees?(1 vote)
- If you exercise an option you are NOT buying the call back on the open market. In the example you are buying the stock for whatever the strike price is. $14 and $17. You can immediately sell the stock in GE at the bid. GE is very heavily traded and is liquid with a bid ask spread at a penny or less. If the bid is $18.95 when you exercise then you can sell it immediately.(1 vote)
- So , following from the parity videos, for the strike price of 18$ put is selling at 0.35 and call at 1.49, does this mean we have an arbitrage opportunity?(1 vote)
- You'll see the put-call parity come into play on the ATM (at the money) option. The $18 option is ITM on the calls and OTM on the puts since GE was trading at almost $19 so there will be a difference in the option prices.
Look at the $19 strike price, which would be the ATM strike in this case. The put is $0.79 and the call is $0.76.(1 vote)
- SO there is 399 Open call options. If i buy 5 contracts that number would go to 394 and the Open Interest would go to 5?(1 vote)
- It wouldn't change at all. Open interest is simply the number of options that are floating around in the market. It doesn't matter who holds them. The open interest number only changes if options are written, expire, or exercised.(1 vote)
- Should I just go ahead and buy a bunch of call& put options and sell them right away to make some instant money? That's sounds too good to be true(1 vote)
- Remember you're paying for the option as well: option price + strike is usually greater than the price of the underlying asset.(1 vote)
Voiceover: Here are some option quotes from CNBC.com and my goal here is to really just familiarize you with the quote, so you know what you're looking at. So the first thing to realize is that options are categorized by expiration dates. So these options that I've listed right here are expiring in April 2011 and options expire or they usually expire on the third Friday of any month or I guess to be exact, the third Friday of the month is the last day that you could trade them. They officially expire the Saturday after that. And these are options on GE, the last stock quote. It last traded at $18.95 and the way that that's listed on CNBC.com, and it tends to be listed this way pretty much anywhere that you look at option quotes, is that they list the calls on one side and then the puts on the other side and these are obviously calls and puts on General Electric and then they write the strike prices down the middle in increasing order. So the first column, this is just the symbol for that particular option. This is the last trading price. This is how much it's changed that day. The low and the high give the range of trading that day on that option. Volume tells us how many options actually traded that day and open interest, which is something that you're probably not familiar with if you've only looked at stock quotes, tells us how many actual, open options contracts of that type are actually in existence. So if you look right over here, this tells us that there are 399 open con ... open call options with a $14 stock ... strike price at an April 2011 expiration on General Electric. And it tells us that none of those 399 open options actually traded that day. If any of these 399 options get exercised, then it'll go down to 398. If someone writes a new option, then it'll go up to 400. And the way it's listed here is that the "in the money" options are listed in this light blue color and that the "out of the money" options don't get the light blue color. And so you can see the "in the money" call options are the ones that have the strike price below ... below today's current strike price. Because if you had a call option for $17 that gives you the right to buy GE for $17 and if you exercise it today, you'd buy it at $17 and you could immediately sell that stock for $18.95. So you would immediately make $1.95 profit. And you could see right here that the stock is or the option I should say, is actually trading a little bit above that and that's because it has the optionality. You can definitely make $1.95 on it, but you might want to keep it around because you can potentially get the upside on GE stock, up to the third Friday of April 2011 while having a limited downside. The most you could lose here is the price that you paid for your option. And then you can see the put options that are in the money, are the ones that have a strike price above the current trading price. If I had a $20 ... If I had a put option with a $20 strike or a $20 exercise price, that means that I could go out in the market today, buy the stock for $18.95 and then immediately sell it for $20. So I would make an immediate $1.05 profit and you could see here that the option is trading for a little bit more than $1.05 because of the optionality.