Fundamentals of Options Market

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McGraw Hill Professional, Jan 9, 2001 - Business & Economics - 340 pages
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Options are an investment vehicle that can enhance virtually any investment philosophy. Fundamentals of the Options Market provides a clear, concise picture of this global marketplace. Using examples drawn from contemporary financial news, this completely accessible guidebook describes why and how these versatile tools can be used to hedge risk and enhance return, while explaining popular products including listed stock options, index options, and LEAPS.
 

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Contents

Introduction to Options
1
Characteristics of Stock Options
9
Building Blocks
25
Pricing Options
37
Option Volatility
55
Introduction to Synthetics
71
The Greeks
85
Position Trading
107
Market Making
231
The Marketplace
243
Getting Started
265
A Order Types
285
Indices
295
F The Options Clearing Corporation OCC
305
G Intrinsic and Premium Formulas
307
Index
333

Option Strategies
125

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Common terms and phrases

Popular passages

Page 331 - Put option An option contract that gives the holder the right to sell a specified number of shares of the underlying stock at the given exercise price on or before the option expiration date.
Page 332 - The portion of the premium that is attributable to the amount of time remaining until the option's expiration date and to the fact that the underlying components that determine the value of the option may change during that time.
Page 325 - A commodity option is a unilateral contract giving the purchaser of the option the right, but not the obligation, to buy (in the case of a call) or sell (in the case of a put) an underlying futures contract or physicial commodity at specified price (the strike price) for a specified period of time.
Page 332 - Strike price/exercise price The stated price per share for which the underlying stock may be bought (in the case of a call) or sold (in the case of a put) by the option holder upon exercise of the option contract.
Page 331 - A call option is in-the-money if the exercise price is less than the market price of the underlying security. A put option is in-the-money if the exercise price is greater than the market price of the underlying security.
Page 15 - When an option is exercised, the option writer (seller) is obligated to sell (in the case of a call option) or buy (in the case of a put option...
Page 325 - Derivative A financial security, such as an option, swap or future, whose value is derived in part from the value and characteristics of another underlying security.
Page 331 - A put option is in-the-money if the exercise price is greater than the market price of the underlying security. Out-of-the-money A call option is out-of-the-money if the exercise price is greater than the market price of the underlying security. A put option is out-of-the-money if the strike price is less than the market price of the underlying security.

About the author (2001)

Michael S. Williams is president and CEO of Market Compass, LLC, which specializes in financial education for investors and traders online, via the Internet, and through the PCX Institute. Williams has been an options market maker on the Pacific Exchange (PCX) for nearly a decade. He is a frequent speaker at conferences around the country including the TSAA annual conference, the Options Industry Council seminars, and The Money Show.

Amy S. Hoffman is a founder and vice-president of Market Compass, LLC. She has been an options market maker on the Pacific Exchange (PCX) trading for hedge funds and as an independent market maker. Hoffman's financial career began in 1989 as a compliance officer and in-house trader for a large commodities firm. She is currently an instructor for the PCX Institute and Options Industry Council.

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