29 lines
1.5 KiB
Plaintext
29 lines
1.5 KiB
Plaintext
4 • The Intelligent Option Investor
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intelligent option investor without understanding these basic facts. The
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concepts discussed here will be covered in greater detail and depth later in
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this book. For now, it is enough to get a sense for what options are, how to
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think about them, and why they might be useful investment tools.
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Characteristics and History
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By the end of this section, you should know the four key characteristics
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of options, be able to name a few options that are common in our daily
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lives, and understand a bit about the long history of options as a financial
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product and how modern option markets operate.
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Jargon introduced in this section is as follows:
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Black-Scholes-Merton model (BSM)
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Listed look-alike
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Central counterparty
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Characteristics of Options
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Rather than giving a definition for options, I’ll list the four most important
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characteristics that all options share and provide a few common examples.
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Once you understand the basic characteristics of options, have seen a few
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examples, and have spent some time thinking about them, you will start to
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see elements of optionality in nearly every situation in life.
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An option
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1. Is a contractual right
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2. Is in force for a specified time
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3. Allows an investor to profit from the change in value of another
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asset
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4. Has value as long as it is still in force
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This definition is broad enough that it applies to all sorts of options—
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those traded on a public exchange such as the Chicago Board Options
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Exchange and those familiar to us in our daily lives. |