6.1 Options Markets Chapter 6 Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, Shanghai Normal University
Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, Shanghai Normal University 6.1 Options Markets Chapter 6
6.2 Assets Underlying Exchange-Traded Options Page 151-2 Stocks Foreign Currency · Stock| dices Futures · Commodities etc Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, Shanghai Normal University
Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, Shanghai Normal University 6.2 Assets Underlying Exchange-Traded Options Page 151-2 • Stocks • Foreign Currency • Stock Indices • Futures • Commodities • etc
6.3 Specification of Plain-Vanilla? Exchange-Traded Options Expiration date Strike price Style(European or American) Class(call or put) Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, Shanghai Normal University
Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, Shanghai Normal University 6.3 Specification of “Plain-Vanilla” Exchange-Traded Options • Expiration date • Strike price • Style (European or American) • Class (Call or Put)
6.4 Terminology (page 154) Moneyness At-the-money option(平值) -n-he- money option(实值) Out-of-the- money option(虚值) Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, Shanghai Normal University
Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, Shanghai Normal University 6.4 Terminology (page 154) Moneyness : –At-the-money option(平值) –In-the-money option(实值) –Out-of-the-money option(虚值)
6.5 Terminology (continued Option class Option series Intrinsic value Time value Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, Shanghai Normal University
Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, Shanghai Normal University 6.5 Terminology (continued) • Option class • Option series • Intrinsic value • Time value
6.6 Dividends &e stock Splits (Page155-6) Suppose you own N options with a strike price Of x No adjustments are made to the option terms for cash dividends When there is an n-for-m stock split the strike price is reduced to mX/n the no of shares in one contract is increased to nN/m (Example 6.1) Stock dividends are handled in a manner similar to stock splits Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, Shanghai Normal University
Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, Shanghai Normal University 6.6 Dividends & Stock Splits (Page 155-6) • Suppose you own N options with a strike price of X : – NO adjustments are made to the option terms for cash dividends – When there is an n-for-m stock split, • the strike price is reduced to mX/n • the no. of shares in one contract is increased to nN/m (Example 6.1) – Stock dividends are handled in a manner similar to stock splits
6.7 Dividends stock splits (continued) Consider a call option to buy 100 shares of Xyz for $20/share How should terms be adjusted for a So.50/share cash dividend? for a 2-for-1 stock split for a 5% stock dividend? Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, Shanghai Normal University
Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, Shanghai Normal University 6.7 Dividends & Stock Splits (continued) • Consider a call option to buy 100 shares of XYZ for $20/share • How should terms be adjusted: – for a $0.50/share cash dividend? – for a 2-for-1 stock split? – for a 5% stock dividend?
68 Organization of Trading Ty ypes of Alternative systems traders for limit orders Market Order book officials makers Specialists Floor brokers Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, Shanghai Normal University
Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, Shanghai Normal University 6.8 Organization of Trading • Types of traders: – Market makers – Floor brokers • Alternative systems for limit orders – Order book officials – Specialists
6.9 Margins Naked Margins are required when options are SOLD(written) The initial margin is 50% of the value of the shares The maintenance margin is 25% When a naked option (whose position is not combined with an offsetting position in the underlying stock) is written, the margin is the greater of 1. Atotal of 100% of the proceeds of the sale plus 20% of the underlying share price less the amount(if any) by which the option is out of the money 2. A total of 100% of the proceeds of the sale plus 10% of the underlying share price EXample 6.3(Page 161) Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, Shanghai Normal University
Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, Shanghai Normal University 6.9 Margins :Naked • Margins are required when options are SOLD (written) --The initial margin is 50% of the value of the shares -- The maintenance margin is 25% • When a naked option (whose position is not combined with an offsetting position in the underlying stock) is written, the margin is the greater of: 1. A total of 100% of the proceeds of the sale plus 20% of the underlying share price less the amount (if any) by which the option is out of the money 2. A total of 100% of the proceeds of the sale plus 10% of the underlying share price Example 6.3 (Page 161)
6.10 Margins: Covered Calls No Margin is required for the options This is because the shares are already owned The minimum cash outlay to set up a covered call is The margin for the stock is 50% Less the proceeds from the sale of the options Plus the extent (if any) that the options are /TM Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, Shanghai Normal University
Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, Shanghai Normal University 6.10 Margins: Covered Calls • No Margin is required for the options. This is because the shares are already owned. • The minimum cash outlay to set up a covered call is The margin for the stock is 50% Less the proceeds from the sale of the options Plus the extent (if any) that the options are ITM