【正文】 kets: IntroductionChapter OpenerPARTAn option is described as in the money In the money describes an option whose exercise would produce profits. Out of the money describes an option where exercise would not be profitable. when its exercise would produce profits for its holder. An option is out of the money Out of the money describes an option where exercise would not be profitable. In the money describes an option where exercise would produce profits. when exercise would be unprofitable. Therefore, a call option is in the money when the asset price is greater than the exercise price. It is out of the money when the asset price is less than the exercise price。Standardization of the terms of listed option contracts means all market participants trade in a limited and uniform set of securities. This increases the depth of trading in any particular option, which lowers trading costs and results in a more petitive market. Exchanges, therefore, offer two important benefits: ease of trading, which flows from a central marketplace where buyers and sellers or their representatives congregate。The exercise (or strike) prices bracket the stock price. While exercise prices generally are set at fivepoint intervals, larger intervals sometimes are set for stocks selling above $100, and intervals of $ may be used for stocks selling at low prices. If the stock price moves outside the range of exercise prices of the existing set of options, new options with appropriate exercise prices may be offered. Therefore, at any time, both inthemoney and outofthemoney options will be listed, as in this example.s 100 stock group. The weights are proportional to the market value of outstanding equity for each stock. The Dow Jones Industrial Index, by contrast, is a priceweighted average of 30 stocks. Options are traded on Treasury notes and bonds, Treasury bills, certificates of deposit, GNMA passthrough certificates, and yields on Treasury and Eurodollar securities of various maturities. Options on several interest rate futures also trade. Among these are contracts on Treasury bond, Treasury note, municipal bond, LIBOR, Euribor,2 and Eurodollar futures.1Occasionally, this price may not match the closing price listed for the stock on the stock market page. This is because some NYSE stocks also trade on exchanges that close after the NYSE, and the stock pages may reflect the more recent closing price. The options exchanges, however, close with the NYSE, so the closing NYSE stock price is appropriate for parison with the closing option price.2The Euribor market is similar to the LIBOR market (see Chapter 2), but the interest rate charged in the Euribor market is the interbank rate for eurodenominated deposits. Values of Options at Expirationp. 674Call OptionsRecall that a call option gives the right to purchase a security at the exercise price. Suppose you hold a call option on FinCorp stock with an exercise price of $100, and FinCorp is now selling at $110. You can exercise your option to purchase the stock at $100 and simultaneously sell the shares at the market price of $110, clearing $10 per share. Yet if the shares sell below $100, you can sit on the option and do nothing, realizing no further gain or loss. The value of the call option at expiration equals where ST is the value of the stock at expiration and X is the exercise price. This formula emphasizes the option property because the payoff cannot be negative. That is, the option is exercised only if ST exceeds X. If ST is less than X, exercise does not occur, and the option expires with zero value. The loss to the option holder in this case equals the price originally paid for the option. More generally, the profit to the option holder is the value of the option at expiration minus the original purchase price.Figure depicts the payoff and profit diagrams for the call writer. These are the mirror images of the corresponding diagrams for call holders. The breakeven point for the option writer also is $114. The (negative) payoff at that point just offsets the premium originally received when the option was written.p. 675For each strategy, plot both the payoff and profit diagrams as a function of the final stock price.b.Why might one characterize both buying puts and writing calls as “bearish” strategies? What is the difference between them?s profit at expiration, net of the initial cost of the put.Figure Profits do not bee positive unless the stock price at expiration exceeds $114. The breakeven point is $114, because at that price the payoff to the call, ST ? X = $114 ? $100 = $14, equals the initial cost of the call. A currency option offers the right to buy or sell a quantity of foreign currency for a specified amount of domestic currency. Currency option contracts call for purchase or sale of the currency in exchange for a specified number of . dollars. Contracts are quoted in cents or fractions of a cent per unit of foreign currency.Options on the major indexes, that is, the Samp。P 500 or the NASDAQ 100. Index options are traded on several broadbased indexes as well as on several industryspecific indexes and even modity price indexes. We discussed many of these indexes in Chapter 2.Because 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。To account for a stock split, the ex