【正文】 re considered next. Finally, we examine a range of securities with embedded options such as callable or convertible bonds, and we take a quick look at some socalled exotic options. The Option Contractp. 668A call option The right to buy an asset at a specified exercise price on or before a specified expiration date. gives its holder the right to purchase an asset for a specified price, called the exercise Price set for calling (buying) an asset or putting (selling) an asset., or strike price Price set for calling (buying) an asset or putting (selling) an asset., on or before some specified expiration date. For example, a January call option on IBM stock with exercise price $130 entitles its owner to purchase IBM stock for a price of $130 at any time up to and including the expiration date in January. The holder of the call is not required to exercise the option. The holder will choose to exercise only if the market value of the underlying asset exceeds the exercise price. In that case, the option holder may “call away” the asset for the exercise price. Otherwise, the option may be left unexercised. If it is not exercised before the expiration date of the contract, a call option simply expires and no longer has value. Therefore, if the stock price is greater than the exercise price on the expiration date, the value of the call option equals the difference between the stock price and the exercise price。VIp. 667DERIVATIVE SECURITIES, ORSellers of call options, who are said to write calls, receive premium ine now as payment against the possibility they will be required at some later date to deliver the asset in return for an exercise price less than the market value of the asset. If the option is left to expire worthless, however, then the writer of the call clears a profit equal to the premium ine derived from the initial sale of the option. But if the call is exercised, the profit to the option writer is the premium ine derived when the option was initially sold minus the difference between the value of the stock that must be delivered and the exercise price that is paid for those shares. If that difference is larger than the initial premium, the writer will incur a loss.s broker purchases the necessary shares of IBM at the market price and immediately delivers, or “puts them,” to an option writer for the exercise price. The owner of the put profits by the difference between the exercise price and market price.) no one would exercise the right to purchase for the strike price an asset worth less than that price. Conversely, put options are in the money when the exercise price exceeds the asset39。Options contracts traded on exchanges are standardized by allowable expiration dates and exercise prices for each listed option. Each stock option contract provides for the right to buy or sell 100 shares of stock (except when stock splits occur after the contract is listed and the contract is adjusted for the terms of the split). and a liquid secondary market where buyers and sellers of options can transact quickly and cheaply.Stock options on IBM Closing prices as of December 2, 2009Source: The Wall Street Journal Online, December 3, 2009.Figure is a selection of listed stock option quotations for IBM. The last recorded price on the New York Stock Exchange for IBM shares was $ per Options are reported on IBM at exercise prices of $120 through $135.Expirations of most exchangetraded options tend to be fairly short, ranging up to only several months. For larger firms and several stock indexes, however, longerterm options are traded with expirations ranging up to several years. These options are called LEAPS (for LongTerm Equity AnticiPation Securities).CONCEPTCHECKWhat will be the proceeds and net profits to an investor who purchases the January expiration IBM calls with exercise price $125 if the stock price at expiration is $135? What if the stock price at expiration is $115?b.2Margin requirements are determined in part by the other securities held in the investor39。 An index option is a call or put based on a stock market index such as the Samp。The construction of the indexes can vary across contracts or exchanges. For example, the Samp。There is an important difference between currency options and currency futures options. The former provide payoffs that depend on the difference between the exercise price and the exchange rate at maturity. The latter are foreign exchange futures options that provide payoffs that depend on the difference between the exercise price and the exchange rate futures price at maturity. Because exchange rates and exchange rate futures prices generally are not equal, the options and futuresoptions contracts will have different values, even with identical expiration dates and exercise prices. Trading volume in currency futures options dominates by far trading in currency options.Interest Rate OptionsConversely, the writer of the call incurs losses if the stock price is high. In that scenario, the writer will receive a call and will be obligated to deliver a stock worth ST for only X dollars: The call writer, who is exposed to losses if the stock price increases, is willing to bear this risk in return for the option premium.The value of a put option at expiration is The solid line in Figure illustrates the payoff at expiration to the holder of a put option on FinCorp stock with an exercise price of $100. If the stock price at expiration is above $100, the put has no value, as the right to sell the shares at $100 would not be exercised. Below a price of $100, the put value at expiration increases by $1 for each dollar the stock price falls. The dashed line in Figure is a graph of the put option owner39。Figure CONCEPTCHECK (ii) write a call。Why might one characterize both buying calls and writing puts as “bullish” strategies? What is the difference between them?c.16