Best options on Forex
Filed Under (Uncategorized) by admin on 03-09-2011
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A put option is a financial contract between two parties, buyer and seller of the option. The put allows the buyer the right but not the obligation to sell a commodity or financial instrument (the underlying instrument) to the seller of the option at any given time for a certain price (strike price). The seller assumes the corresponding obligations. Note that the seller of the option undertakes to base! In exchange for being granted this option, the buyer pays the seller a fee.
Exact specifications may vary depending on the style of choice. A European put option allows the holder to exercise, or to sell at the date of delivery only. An American put option allows exercise at any time during the option’s life. The put option is the most widely known stock option, the option to sell shares of a particular company. However, the options are traded in many other assets: financial – such as interest rates (see interest rate floor) – and physical, such as gold or crude oil.
Example of a put option on a stock
You can get a contract to have the option to sell a stock in XYZ on June 1, 2003, for $ 50.
If XYZ Corp. stock price is actually only $ 40 that day, so you would exercise my option (ie sell the action of the counter-party). You could then buy another share on the open market for $ 40, ie, the option would be $ 10, my profit would be $ 10 minus the rate that you paid for the option. If, however, the share price is more than the option price, say $ 60, so you could not exercise the option. If you really wanted to sell such a share, you could do it on the open market for $ 60, and make more profit than I would by selling the option. My choice would be useless and you have lost all your money, the fee for the option. This example illustrates that the put option has positive monetary value when the underlying instrument has a spot price (S) below the strike price (K). The science of determining this value is the central tenet of financial mathematics. The most common method is to use the Black-Scholes formula. Whatever the formula, the buyer and seller must agree this value initially.
