Characteristics, Uses and Taxation of Investments - Call and Put Summary
3.Call and Put Summary
|Summary of Put and Call Relationships|
|Stock Price>Strike Price||In-the-money||Stock Price<Strike Price|
|Stock Price=Strike Price
||At-the-money||Stock Price=Strike Price|
|Stock Price<Strike Price||Out-of-the money||Stock Price>Strike Price|
|Call Up (Stock Price-Call Price)||Intrinsic Value||Put Down (Strike Price-Stock Price)|
|Strike Price + Premium||Breakeven||Strike Price-Premium|
4. Premium Inputs
- Volatility - the greater the volatility or stock price movement, the more valuable is the option and the greater the premium.
- Intrinsic Value Amount - the more an option is in the money, the greater its intrinsic value. An at-the-money or out-of-the-money option has an intrinsic value of zero.
- Time Remaining Until Expiration - the more time to expiration the greater the option's value and vica versa.
- Interest Rates.
5. Option Strategies
|Bullish||Buy Calls - speculate on the stock\'s direction, lock in a price for little outlay, diversify holdings, protect a short position.||Write Puts - speculate on the stock\'s direction, increase returns from selling options, purchase price of stock reduced by premium received.|
|Bearish||Buy Puts - speculate on the possible downward direction of the stock\'s price, defer a decision, protect a long stock position.||Write Calls - speculate on stock\'s direction, increase returns from premium income received, lock in a sales price, protect a long stock position.|