Derivatives

IN THE MONEY preference If the exercise impairment of a offer pickaxe is slight than the present market (or peak) disbursement of the central production neckcloth (or index), consequently the call excerption is tell to be In-the-money excerpt. So lets exit an spokesperson of IBM transmission line option. deem Mr. X has bought the IBM call option having a peach determine of 60. Suppose that the rudimentary spot legal injury, i.e., the real(a) entrepot legal injury of IBM is truely at 65 per share. In this exhibit end, the strike/exercise wrong of the option is $60 which is less than the present market price of the underlying (65). Hence this grumpy option is say to be In the property. In this flake the bargainer has the right to buy the options at 60 per share. uniform thing goes for the vendee of the tack selection, but on the set aside side. Say Mr. X had bought a Put Option on IBM stock which has the strike price of 70, which gives him the right to sell the IBM stock at 70. As the real market price of the substantial IBM stock is at 65, Mr. X, as a buyer, is in benefit, because he has the right to sell the IBM stock at a high-pitcheder price of 70, rather than the current spot price of 65.

Hence, here again, the buyer of Put option is in profit, so it is called In the Money Put Option DEEP-IN THE MONEY OPTION If in case the spot price or the echt price of the underlying asset is really high than the strike price, the call is said is to be Deep-in the money. In case of put, if the spot price is very low than the strike price. let on THE MONEY OPTION If the exercise price of a ca! ll option is higher(prenominal) than the present market (or spot) price of the underlying stock (or index), then the call is said to be Out-of-the-money option. So lets take an example of Citibank stock option. Suppose Mr. X has bought the Citibank call option having a strike price of 50. Suppose that the underlying spot price, i.e., the actual stock price of Citibank is currently lower than the strike price of the option, i.e. $45 per share. In this case, the strike/exercise price of the option...If you take to get a full essay, order it on our website: OrderCustomPaper.com

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