Podcast
Questions and Answers
In a short call option position, what is the seller's loss if the spot price closes above the strike price?
In a short call option position, what is the seller's loss if the spot price closes above the strike price?
What is the pay-off for the buyer of a long call option if the closing spot price is below the strike price at expiry?
What is the pay-off for the buyer of a long call option if the closing spot price is below the strike price at expiry?
What is the pay-off for the buyer of a long put option if the closing spot price is above the strike price at expiry?
What is the pay-off for the buyer of a long put option if the closing spot price is above the strike price at expiry?
For a long put option, when does the option buyer make a profit?
For a long put option, when does the option buyer make a profit?
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In a short put option position, what is the seller's loss if the spot price closes below the strike price?
In a short put option position, what is the seller's loss if the spot price closes below the strike price?
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What does the short position in a put option involve?
What does the short position in a put option involve?
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In a long call option, when does the option buyer make profit?
In a long call option, when does the option buyer make profit?
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What is the pay-off for a long call option buyer if the closing spot price is equal to the strike price at expiry?
What is the pay-off for a long call option buyer if the closing spot price is equal to the strike price at expiry?
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What happens to a long put option buyer if the spot price is equal to the strike price at expiry?
What happens to a long put option buyer if the spot price is equal to the strike price at expiry?
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What defines a long position in an option?
What defines a long position in an option?
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Study Notes
Short Call Option
- The seller's loss is unlimited if the spot price closes above the strike price at expiry, as they are obligated to sell the underlying asset at the strike price, regardless of the market price.
Long Call Option
- The buyer loses the premium paid if the closing spot price is below the strike price at expiry, as the option expires worthless.
Long Put Option
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The buyer loses the premium paid if the closing spot price is above the strike price at expiry, as the option expires worthless.
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The option buyer makes a profit if the closing spot price is below the strike price at expiry.
Short Put Option
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The seller's loss is limited to the strike price minus the premium received if the spot price closes below the strike price at expiry.
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The short position involves selling a put option to another party, obligating the seller to buy the underlying asset at the strike price if the option holder exercises it.
Long Call Option Cont'd
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The buyer makes a profit if the closing spot price is above the strike price at expiry.
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The pay-off is equal to the difference between the spot price and the strike price minus the premium paid, if the spot price is equal to the strike price at expiry.
Long Put option Cont'd
- The buyer neither makes nor loses money if the spot price at expiry equals the strike price.
Long Position
- A long position in an option contract means the investor owns the option contract and has the right, but not the obligation, to buy or sell the underlying asset.
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Description
Explore strategies and payout variations involved in trading options as outlined in Chapter 5. Learn about the different roles of option buyers and sellers, and how to use options to enhance investment returns.
