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
||Stock Price<Strike Price
|Stock Price=Strike Price
||Stock Price=Strike Price
|Stock Price<Strike Price
||Stock Price>Strike Price
|Call Up (Stock Price-Call Price)
||Put Down (Strike Price-Stock Price)
|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
Options: Advantages and Disadvantages
||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.
||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.