【正文】 e payoff from the option unaffected.Option contracts on many foreign stock indexes also trade. For example, options on the (Japanese) Nikkei Stock Index trade on the Chicago Mercantile Exchange, and options on the Eurotop 100 and Japan indexes trade on the American Stock Exchange. The Chicago Board Options Exchange, as well as the Amex, lists options on industry indexes such as the biotech or financial industries.P 100 (often called the OEX after its ticker symbol), the Samp。The value at expiration of the call with exercise price $100 is given by the schedule:For stock prices at or below $100, the option is worthless. Above $100, the option is worth the excess of the stock price over $100. The option39。Writing puts naked (., writing a put without an offsetting short position in the stock for hedging purposes) exposes the writer to losses if the market falls. Writing naked outofthemoney puts was once considered an attractive way to generate ine, as it was believed that as long as the market did not fall sharply before the option expiration, the option premium could be collected without the put holder ever exercising the option against the writer. Because only sharp drops in the market could result in losses to the put writer, the strategy was not viewed as overly risky. However, in the wake of the market crash of October 1987, such put writers suffered huge losses. Participants now perceive much greater risk to this strategy.p. 6763Option versus Stock InvestmentsPurchasing call options is a bullish strategy。 (iv) write a put.a.Payoff and profit to put option at expirationThe solid line in Figure depicts the value of the call at expiration. The net profit to the holder of the call equals the gross payoff less the initial investment in the call. Suppose the call cost $14. Then the profit to the call holder would be given by the dashed (bottom) line of Figure . At option expiration, the investor suffers a loss of $14 if the stock price is less than or equal to $100. Futures options give their holders the right to buy or sell a specified futures contract, using as a futures price the exercise price of the option. Although the delivery process is slightly plicated, the terms of futures options contracts are designed in effect to allow the option to be written on the futures price itself. The option holder receives upon exercise a net payoff equal to the difference between the current futures price on the specified asset and the exercise price of the option. Thus if the futures price is, say, $37, and the call has an exercise price of $35, the holder who exercises the call option on the futures gets a payoff of $2.Foreign Currency OptionsP index is at 1100 when a call option on the index with exercise price 1090 is exercised, the holder of the call receives a cash payment of the difference, 1100–1090, times the contract multiplier of $100, or $1,000 per contract. Poor39。When an option holder exercises an option, the OCC arranges for a member firm with clients who have written that option to make good on the option obligation. The member firm selects from its clients who have written that option to fulfill the contract. The selected client must deliver 100 shares of stock at a price equal to the exercise price for each call option contract written or must purchase 100 shares at the exercise price for each put option contract written. conversely, put values are higher for highdividend payouts. (Of course, the option values do not necessarily rise or fall on the dividend payment or exdividend dates. Dividend payments are anticipated, so the effect of the payment already is built into the original option price.)CONCEPTCHECKAmerican and European OptionsAn American option An American option can be exercised before and up to its expiration date. Compare with a European option, which can be exercised only on the expiration date. allows its holder to exercise the right to purchase (if a call) or sell (if a put) the underlying asset on or before the expiration date. European options A European option can be exercised only on the expiration date. Compare with an American option, which can be exercised before, up to, and on its expiration date. allow for exercise of the option only on the expiration date. American options, because they allow more leeway than their European counterparts, generally will be more valuable. Virtually all traded options in the United States are American style. Foreign currency options and stock index options are notable exceptions to this rule, however.Adjustments in Option Contract TermsBecause options convey the right to buy or sell shares at a stated price, stock splits would radically alter their value if the terms of the options contract were not adjusted to account for the stock split. For example, reconsider the IBM call options in Figure . If IBM were to announce a 2for1 split, its share price would fall from about $127 to about $. A call option with exercise price $130 would be just about worthless, with virtually no possibility that the stock would sell at more than $130 before the options expired.Example Trading of standardized options contracts on a national exchange started in 1973 when the Chicago Board Options Exchange (CBOE) began listing call options. These contracts were almost immediately a great success, crowding out the previously existing overthecounter trading in stock options. Option contracts are traded now on several exchanges. They are written on mon stock, stock indexes, foreign exchange, agricultural modities, precious metals, and interest rate futures. In addition, the overthecounter market has enjoyed a tremendous resurgence in recent years as trading in customtailored options has exploded. Popular and potent tools in modifying portfolio characteristics, options have bee essential tools a portfolio manager must understand.Chapter20: Options Mar