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m
he option writer (seller) charges a price
for granting the right from the option
holder (buyer).
{
he option to sell an asset is called a
.
{ x
an option if covered/ written
against the assets owned by the option writer
is called a covered option
÷ © ©
{ @ ½hen an option is allowed
to be exercised only on the maturity date, it
is called a @
.
m
he futures involve obligation while the
options involve right.
m © A put or a call option is said
to when it is advantageous
for the investor to exercise it.
^ x
m
he Security Exchange Board of India
(SEBI) has announced a list of 31
shares for the stock-based option
trading from July 2002. SEBI selected
these shares for option trading on the
basis of the following criteria
m
he non-promoter holding should be at
least 30 per cent and the market
capitalisation of free-float shares should
be Rs 750 crore.
m
he six-month average trading volume in
the share in the underlying cash market
should be a minimum of Rs 5 crore.
m
he ratio of daily volatility of the share vis-
à-vis the daily volatility of the index
should not be more than four times at
any time during the previous six months.
m
he minimum size of the contract is Rs
2 lakh. For the first six months, there
would be cash settlement in options
contracts and afterwards, there would
be physical settlement.
he option sellers will have to pay the
margin, but the buyers will have to
only pay the premium in advance.
he stock exchanges can set limits on
exercise price.
m Ê buying a right from the
option writer to buy a specified quantity
on a specified date for a specified price
[ Ê x
÷ ©Ê
It is the difference
between the spot price and the strike price
÷
he time value or the time
premium of an option is the amount by which
the option price exceeds the intrinsic value
m If the annual volatility is ǔ, then ;
For example, assume a current stock price of Rs.75,
a volatility of .50 and time as 1 month. And we
have to calculate 2 weeks prices.
hen ǔ =0.50
ÊÊ
"
Rs. 75
67.72*1.10745=75
75*0.90297=67.72
67.72*0.9029=61.15
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^@@