Options derivatives example


If you get called, you must buy the stock at its current market value to cover the call even when the market price is higher than the strike price of the option. Alternative Actions for the Put Seller. If the stock continues to appreciate in price after the stock is sold, options derivatives example seller looses the future price gain.

If you don't have the financial resources to cover the obligation of buying the stock from the buyer of the put, you sold "naked puts". Knowledgeable, experienced investors may want to sell covered calls and puts to collect other peoples money. Like gambling you can make or lose money very quickly. If the call seller does not have shares, he must buy the shares on the open market at a price greater than the strike price.

What the call buyer may do. He had to mortgage his house. If not, you'll probably loose most or all the money you paid for the option.

The seller collects the purchase price of the option options derivatives example has the obligation to sell shares of the stock if the buyer decides to exercise the option. This practice lets you sell calls when you don't own the stock. Alternative Actions for the Put Buyer. If the put seller already has money in his account to buy the stock, the put option is covered. Use calls and puts judiciously.

If the value of the stock goes down, the price of the option goes down, and you could hold it or sell it at a loss. Put buyer must own shares to sell. See the following videos: On October 27,the market plummeted seven per cent, and Niederhoffer had to produce huge amounts of cash to back up all the options he'd sold at pre-crash strike prices.

Selling a Call For every buyer of a call there must be a seller, who assumes that the stock price will remain flat or go down. Use calls and puts judiciously. He had to borrow money from his children. On October 27,the market plummeted seven per cent, and Niederhoffer had to produce huge amounts of cash to back up all the options he'd sold options derivatives example pre-crash options derivatives example prices.

What the put seller must do. If the stock increases in price you may sell the put for a loss. Like any margin account transaction, you must execute the transaction immediately. If the call seller does not have shares, he options derivatives example buy the shares on the open market at a price greater than the strike price.