Financial Options

Financial options

Since time immemorial , man has made attempts to engage in the exchange of goods and services with his fellow men .Even where batter trade was used , the art of buying and selling in a market setup were dominantly employed . But as a result of market globalization , it became imperative that people identify a common market where both buyers and sellers can place their orders and transact business , hence the stock exchange Transactions in the stock market involve trading in options

According to Hawkins (2010 , a call option refers to an

agreement that gives an investor the right (but not the obligation ) to buy a stock bond , commodity , or other instrument at a specified price within a specific time period , while a put option on the other hand refers to an option contract giving the owner the right , but not the obligation , to sell a specified amount of an underlying security at a specified price within a specified time

A call option 's exercise value is the price at which the underlying security (a stock , bond , commodity , or other instrument ) can be purchased . Since the call 's exercise price is the key to profiting from options , there must always be a difference between the exercise value and the actual market value of a call . The greater the difference , the more the amount of money required to purchase the call

A risk-free portfolio can be made through employing investment strategies that might be risky , but which will eventually make the...