1. Chapter 19 An Introduction to Options

2. Define the Following Terms n Call Option n Put Option n Intrinsic Value n Exercise (Strike) Price n Premium n Time Premium

3. Value of a Call Option n Premium = Intrinsic Value + Time Premium n Intrinsic Value of a Call n S - Ex if S > EX n or 0 if S <= EX n Time premium equals the premium (Market Price of the the option) less intrinsic value

4. What factors impact the value of a call option? n Time n Stock Price n Exercise Price n Interest Rates n Volatility

5. Profits & losses for the buyer of a call option n o X

6. Profits & losses for the seller of a call option o X

7. Long Call vs Long Stock n o x

8. Value of a Put Option n Premium = Intrinsic Value + Time Premium n Intrinsic Value of a Put n 0 if S > EX n or Ex - S if S <= EX n Time premium equals the premium (Market Price of the the option) less intrinsic value

9. What factors impact the value of a put option? n Time n Stock Price n Exercise Price n Interest Rates n Volatility

10. Profits & losses for the buyer of a put option n o X

11. Profits & losses for the seller of a put option o X

12. Terminology n Call Option – The buyer of a call option has the right to buy the underlying asset at a specified price within a specified time period. – The writer of a call option has the obligation to sell the underlying asset as a specified price within a specified period.

13. Terminology n Put Option – The buyer of a put option has the right to sell the underlying asset at a specified price within a specified time period. – The writer of a put option has the obligation to buy the underlying asset at a specified price within a specified time period.

14. Protective put option n o X Long Put Long Stock

15. Protective Put Option Net Payoff n o X Net Payoff

16. Definitions n Stock index options n Leaps n Warrants