【正文】 piration 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.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. Poor39。 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 OptionsThe 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.Payoff and profit to put option at expirationOption versus Stock InvestmentsPurchasing call options is a bullish strategy。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. 676The 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。P 100 (often called the OEX after its ticker symbol), the Samp。s stock price at the exercise date is $140, and the exercise price of the call is $130. What is the payoff on one option contract? After a 2for1 split, the stock price is $70, the exercise price is $65, and the option holder now can purchase 200 shares. Show that the split leaves the payoff from the option unaffected.1A put option The right to sell an asset at a specified exercise price on or before a specified expiration date. gives its holder the right to sell an asset for a specified exercise or strike price on or before some expiration date. A January expiration put on IBM with exercise price $130 entitles its owner to sell IBM stock to the put writer at a price of $130 at any time before expiration in January even if the market price of IBM is less than $130. While profits on call options increase when the asset increases in value, profits on put options increase when the asset value falls. A put will be exercised only if the exercise price is greater than the price of the underlying asset, that is, only if its holder can deliver for the exercise price an asset with market value less than the exercise price. (One doesn39。 but if the stock price is less than the exercise price at expiration, the call will be worthless. The net profit on the call is the value of the option minus the price originally paid to purchase it. more simply derivatives, play a large and increasingly important role in financial markets. These are securities whose prices are determined by, or “derive from,” the prices of other securities. These assets are also called contingent claims because their payoffs are contingent on the prices of other securities. Options and futures contracts are both derivative securities. We will see that their payoffs depend on the value of other securities. Swaps, which we will discuss in Chapter 23, also are derivatives. Because the value of derivatives depends on the value of other securities, they can be powerful tools for both hedging and speculation. We will investigate these applications in the next four chapters, starting in this chapter with options.Figure Consider these four option strategies: (i) buy a call。 (iii) buy a put。Payoff and profit to call writers at expirationIn contrast to stock options, index options do