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DQ 2 WEEK 6

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Running head: OPTIONS 1

OPTIONS

Name:

Course:

College:

Tutor:

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OPTIONS 2

Analyze the ways in which a call option differs from a put option. Suggest the

circumstances under which an investor would use each. Provide an example of instances

where each option would be utilized.

Options give one the right to conduct a transaction of a security at a set predetermined

price that is set within a specified period. Even though it is not required in the Call option, one

has the right to buy a certain agreed upon quantity of a commodity or product (also referred to as

the underlying asset) from the seller within a certain specific set date (the expiry date/period)

also set for a certain fixed price which is referred to as the strike price (Morris, & Newman,

2004).

On the contrary, a put option gives one the right to sell the commodities or rather the

underlying stock at a certain date at a certain predetermined strike price.

When purchasing a call option, it is done with only the hope that the underlying stock does not

rise above the strike price while a put option is purchased only with the hope that the underlying

stock drops significantly below the strike price (Morris, & Newman, 2004).

Investors should familiarize themselves with different various strategies before settling

on a certain investment. They should learn how options operate before engaging in any

investment.

A certain stock is trading at $10,000. An investor is sure that the stock will soon advance to

$12,000. He then decides to buy a contract of the December 200 calls at a premium of $200. The

total cost of the transaction is $2,000,000 plus the commissions. The second option is buying the

stock outright at a cost of $10,000,000.

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OPTIONS Name: Course: College: Tutor: Date: Analyze the ways in which a call option differs from a put option. Suggest the circumstances under which an investor would use each. Provide an example of instances where each option would be utilized. Options give one the right to conduct a transaction of a security at a set predetermined price that is set within a specified period. Even though it is not required in the Call option, one has the right to buy a certain agreed upon quantity of a commodity or product (also referred to as the underlying asset) from the seller within a certain specific set date (the expiry date/period) also set for a certain fixed price which is referred to as the strike price (Morris, & Newman, 2004). On the contrary, a put option gives one the right to sell the commodities or rather the underlying stock at a certain date at a certain predetermined strike price. When purchasing a call option, it is done with only the hope that the underlying stock does not rise above the strike price while a put option is purchased only with the hope that the underlying stock drops significantly below the strike price (Morris, & Newman, 2004). Investors should familiarize themselves with different various strategies before settling on a certain investment. They should learn how options operate before engaging in any investment. A certain stock is trading at $10,000. An investor is sure that the stock will soon advance to $12,000. He then decides to buy a contract o ...
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