【正文】 ptions on assets other than stocks are also widely traded. These include options on market indexes and industry indexes, on foreign currency, and even on the futures prices of agricultural products, gold, silver, fixedine securities, and stock indexes. We will discuss these in turn.p. 673Index OptionsBecause the OCC guarantees contract performance, option writers are required to post margin to guarantee that they can fulfill their contract obligations. The margin required is determined in part by the amount by which the option is in the money, because that value is an indicator of the potential obligation of the option writer. When the required margin exceeds the posted margin, the writer will receive a margin call. In contrast, the holder of the option need not post margin because the holder will exercise the option only if it is profitable to do so. After purchase of the option, no further money is at risk.Suppose that IBM39。In contrast to stock dividends, cash dividends do not affect the terms of an option contract. Because payment of a cash dividend reduces the selling price of the stock without inducing offsetting adjustments in the option contract, the value of the option is affected by dividend policy. Other things being equal, call option values are lower for highdividend payout policies, because such policies slow the rate of increase of stock prices。To account for a stock split, the exercise price is reduced by a factor of the split, and the number of options held is increased by that factor. For example, each original call option with exercise price of $130 would be altered after a 2for1 split to 2 new options, with each new option carrying an exercise price of $65. A similar adjustment is made for stock dividends of more than 10%。Now answer part (a) for an investor who purchases a January expiration IBM put option with exercise price $125.If an option does not trade on a given day, three dots will appear in the volume and price columns. Because trading is infrequent, it is not unusual to find option prices that appear out of line with other prices. You might see, for example, two calls with different exercise prices that seem to sell for the same price. This discrepancy arises because the last trades for these options may have occurred at different times during the day. At any moment, the call with the lower exercise price must be worth more than an otherwiseidentical call with a higher exercise price.Until recently, most options trading in the United States took place on the Chicago Board Options Exchange. However, by 2003 the International Securities Exchange, an electronic exchange based in New York, displaced the CBOE as the largest options market. Options trading in Europe is uniformly transacted in electronic exchanges.s value, because delivery of the lowervalued asset in exchange for the exercise price is profitable for the holder. Options are at the money When the exercise price and asset price of an option are equal. when the exercise price and asset price are equal.p. 670Options TradingSome options trade on overthecounter markets. The OTC market offers the advantage that the terms of the option contract—the exercise price, expiration date, and number of shares mitted—can be tailored to the needs of the traders. The costs of establishing an OTC option contract, however, are higher than for exchangetraded options.Profits and Losses on a Put OptionNow consider the January 2010 expiration put option on IBM with an exercise price of $130, selling on December 2, 2009, for $. It entitled its owner to sell a share of IBM for $130 at any time until January 15. If the holder of the put buys a share of IBM and immediately exercises the right to sell at $130, net proceeds will be $130 ? $ = $. Obviously, an investor who pays $ for the put has no intention of exercising it immediately. If, on the other hand, IBM sells for $123 at expiration, the put turns out to be a profitable investment. Its value at expiration would be and the investor39。Profits and Losses on a Call OptionConsider the January 2010 expiration call option on a share of IBM with an exercise price of $130 that was selling on December 2, 2009, for $. Exchangetraded options expire on the third Friday of the expiration month, which for this option was January 15, 2010. Until the expiration date, the purchaser of the calls may buy shares of IBM for $130. On December 2, IBM sells for $. Because the stock price is currently less than $130 a share, exercising the option to buy at $130 clearly would make no sense at that moment. Indeed, if IBM remains below $130 by the expiration date, the call will be left to expire worthless. On the other hand, if IBM is selling above $130 at expiration, the call holder will find it optimal to exercise. For example, if IBM sells for $132 on January 15, the option will be exercised, as it will give its holder the right to pay $130 for a stock worth $132. The value of the option on the expiration date would then be Despite the $2 payoff at expiration, the call holder still realizes a loss of $.18 on the investment because the initial purchase price was $: p. 669Nevertheless, exercise of the call is optimal at expiration if the stock price exceeds the exercise price because the exercise proceeds will offset at least part of the cost of the option. The investor in the call will clear a profit if IBM is selling above $ at the expiration date. At that stock price, the proceeds from exercise will just cover the original cost of the call.The purchase price of the option is called the premium The purchase price of an option.. It represents the pensation the purchaser of the call must pay for the right to exercise the option if exercise bees profitable.This chapter is an introduction to options markets. It explains how puts and calls work and examines their investment characteristics. Popular option strategies a