32 lines
838 B
Plaintext
32 lines
838 B
Plaintext
The Intelligent Investor’s Guide to Option Pricing • 55
|
||
would be more expensive than the following put option, which looks like
|
||
this:
|
||
5/18/2012 5/20/2013 249 499 749 999
|
||
-
|
||
10
|
||
20
|
||
30
|
||
40
|
||
50
|
||
60
|
||
70
|
||
80
|
||
90
|
||
100
|
||
Advanced Building Corp. (ABC)
|
||
Date/Day Count
|
||
Stock Price
|
||
GREEN
|
||
The former would be more expensive than the latter simply because the
|
||
range of exposure for the first lies further within the BSM cone of prob-
|
||
ability than the latter.
|
||
We can extrapolate these lessons regarding calls and puts to come
|
||
up with a generalized rule about comparing the prices of two or more op-
|
||
tions. Options will be more expensive in proportion to the total range of
|
||
exposure that lies within the BSM cone. Graphically, we can represent this
|
||
rule as follows:
|
||
This call option will be much less
|
||
expensive…
|
||
GREEN
|
||
GREEN
|
||
than this call option. |