American call option as the insurance? - john c hull
Hello, written after the books on the options by John C. Hull.
"An American call option, if you are one in the place of values are in fact provides the holder against the stock below the exercise price.
Can anyone help me to understand the above sentence? I do not understand how it can be secured against falling share prices, not against the rise in stock prices?
John C Hull American Call Option As The Insurance?
3 comments:
I agree with that Oh Boy! He said, but I'll try to explain a little bit differently.
\\ \\ \\ \\ \\ \\ \\ \\ U0026lt \\ \\ \\ \\ \\ \\ \\ \\ u0026lt \\ \\ \\ \\ \\ \\ \\ \\ u0026lt, "An American call option, if you have a look at the place of values in itself, in fact, the holder against the stock price below the exercise price.
Can someone help me understand the above sentence?>>>
If you buy 100 shares from the stock of $ 100 per share, representing an investment of 10,000 U.S. Dollar. The most direct way to ensure that the investment could buy a put option. For example, when I bought an American put option with an exercise price of $ 100, matures in three months, $ 5 per share, which means it has spent $ 500 for s to make sure that they issue shares of $ 10,000 at any time to sell in the next three months. After three months, expire worthless if the stock under the put option of $ 100 and still has 100 shares. If the stock at $ 100 per share to exercise the option and sell the shares for $ 10,000. Ignoring costs such as commissions, which means that equilibrium has been achieved in the acquisition of securities, lost $ 500 bonus from pSupport option.
I wish I had exactly the same result if we had instead of buying and selling of stock options, have just purchased an option called American style with a strike price of $ 100, matures in three months, $ 5 campaign. As the population of + for the combination, if the population is equal to or less than $ 100 per share at maturity of the loss of my $ 500 is paid for the option, but if the stock above $ 100 per share to exercise the option and buy shares of $ 10,000, what my $ 10,500 debt to the company that owns 100 shares of the population.
\\ \\ \\ \\ \\ \\ \\ \\ U0026lt \\ \\ \\ \\ \\ \\ \\ \\ u0026lt \\ \\ \\ \\ \\ \\ \\ \\ u0026lt, I do not understand how it helps the price of securities must not be lower against the rising prices of stocks? >>>
N ° with either a purchase or action + the combination that you have a fixed maximum loss, but have unlimited earning potential.
No, do not forget that you have to talk instead of calling the stock.
Consider two scenarios.
Firstly, you have reduced stocks and shares. It takes the entire loss.
Second, you have the opportunity and the decline in stocks. What are you driving? They are simply the price you pay for the call. But the interesting question of how far people have to fall? Let's say the population at a price of $ 100 and you have the option to purchase up to $ 100. What happens if the stock falls to $ 90? If you own stock you're out $ 10 If you have an appeal which have paid only because of the premium. What happens if the stock falls to $ 50? The owners of the shares is $ 50, but the owner called out again, only for the premium paid. Hull point is that she falls for the value of the shares are insured, as they possessed.
Put options on the disadvantages, such as falling stock prices do not receive options.
If the stock price low, increases the sale price. As protection of the owners.
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