CFP

Characteristics, Uses and Taxation of Investments - Call and Put Summary



3.
Call and Put Summary
Summary of Put and Call Relationships
Calls Puts
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

  1. Volatility - the greater the volatility or stock price movement, the more valuable is the option and the greater the premium.
  2. 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.
  3. Time Remaining Until Expiration - the more time to expiration the greater the option's value and vica versa.
  4. Interest Rates.

5. Option Strategies


Outlook
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.


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