...Option Greeks When learning Option Greeks there are four words you need to know. These words are delta, gamma, theta and Vega. Option Greeks are measurements of risk that explain several variables that influence option prices. Before we can begin understanding what Option Greeks are, we should first understand the factors which influence the change in the price of an option. Then we can better understand how this fits in with the Option Greeks. Here are the 3 main factors that influence the change in the price of an option: Volatility Amount If you are long in the option, increases in volatility are normally positive for both calls and puts. However, an increase in volatility is typically negative if you are the writer of the option. Changes in the time to expiration If an option gets nearer to the expiration time it will become more and more negative and the profit potential will be become less and less. The nearer the option is to expiration, the faster the time value evaporates. Another way of saying this is that the rate of loss of time value for an option with three months left to expiration is faster than that of an option with six months remaining. Time is running out for the option to get in-the-money (when the strike price is less than the market price of the underlying security). The less time, the less value. The closer and closer options get to expiration, the less chance there is that it will happen, and there are generally fewer buyers and more sellers. ...
Words: 687 - Pages: 3
...20.1 Option Basics • Financial Option: A contract that gives its owner the right (but not the obligation) to purchase or sell an asset at a fixed price as some future date • Call Option: A financial option that gives its owner the right to buy an asset • Put Option: A financial option that gives its owner the right to sell an asset • Option Writer: The seller of an option contract • Exercising an Option: When a holder of an option enforces the agreement and buys or sells a share of stock at the agreed-upon price • Strike Price (Exercise Price): The price at which an option holder buys or sells a share of stock when the option is exercised • Expiration Date: The last date on which an option holder has the ri p g p ght to exercise the option Ameri can Option: Options that allow their holders to exercise the option on any date up to, and including, the expiration date • European Option: Options that allow their holders to exercise the option only on the expiration date Note: The names American and European have nothing to do with the location where the options are traded. The option buyer (holder): Holds the right to exercise the option and has a long position in the contract • The option seller (writer): Sells (or writes) the option and has a short position in the contract • Because the long side has the option to exercise, the short side has an obligation to fulfill the contract if it is exercised. The buyer pays the writer a premium. Stock options are traded...
Words: 1601 - Pages: 7
...volatility of cash flows, and this decreases the probability of bankruptcy. b. Risk management can reduce the likelihood of low cash flows, and therefore reduce the probability of financial distress. c. Companies with volatile earnings pay more taxes than more stable companies due to the treatment of tax credits and the rules governing corporate loss carry-forwards and carry-backs. Therefore, our tax system encourages risk management to stabilize earnings. d. Statements a, b, and c are correct. e. None of the statements above is correct. Derivatives Answer: d Diff: E N . Which of the following is an example of a derivative? a. Futures. b. Options. c. Swaps. d. All of the above are examples of derivatives. e. None of the above are examples of derivatives. Options Answer: b Diff: E . An option that gives the holder the right to sell a stock at a specified price at some time in the future is called a(n) a. Call option. b. Put option. c. Out-of-the-money option. d. Naked option. e. Covered option. Option value Answer: d Diff: E . The value of an option depends on the stock’s price, the risk-free rate, and the a. Exercise price. b. Variability of the stock price....
Words: 2014 - Pages: 9
...each other. We have also tried to analyze the impact of the SEBI guidelines on ESOP and benchmarked the findings versus global trends, particularly in the US. • Coverage of employees: There is a noticeable difference in terms of coverage, if one compares the IT and nonIT companies. While around 43% of the IT companies have given ESOPs to more than 90% of the employees, only 17% of the Non-IT companies have done so. A related finding is that more than 75% of the Non-IT companies offer ESOPs only to the senior and middle management employees. This is a predictable trend. We believe that apart from the willingness of the management to offer ESOPs, it is also the preference of the employees, which influences the decision about coverage. While a worker employee in a manufacturing company would prefer a cash incentive to a stock option, a fresh software developer Survey on ESOP Design Practices 2001 would go for a stock option. It has to be seen how the employees in the IT sector react to the slump in the stock prices. It is however interesting that within the IT companies, while only 23% of the large companies offer ESOPs to more than 90% of the employees, the number is as high as 60% in case of smaller companies. A significant 54%...
Words: 1751 - Pages: 8
...Jet2 task 3 Competition Bikes, Inc.Financial AnalysisJET2 Task 3 Introduction Competition Bikes, Incorporated (CBI) has decided to weigh their options for expansion into Canada by either acquiring or merging with Canadian Bikes, Inc. This report will discuss the proposed expansion and make recommendations based on the company's capital structure. Capital structure can be described as how a business finances its assets. There are two main types of capital: Equity and debt. Capital structure is usually a mix of debt, preferred stock, and common stock that the company can use for expansion and to remain financially healthy. The key is to choose the right mix in order to maximize shareholder return. A1. Capital Structure Capital structure is generally defined as how a company finances its assets. It is measured as a percentage of debt and equity (common and preferred stock). Potential investors tend to look positively on a company that has more equity and less debt. The best capital structure approach for CBI to take is to implement the 50% Preferred and 50% Common Stock scenario. This alternative provides the best overall way to improve CBI's financial position with strong capital structure while maximizing shareholder return. A1a. A review of Canadian Bikes data over five years indicates consistently increased earnings before interest and taxes (EBIT), increased net profit, and increased shareholder returns (EPS). Offering the 50% preferred and 50% common stock...
Words: 5829 - Pages: 24
...FINA 3386.01 Spring 2014 Exam 3 Name:______________________________ ID:___________________________ Multiple choice (2 points each) 1. Which of the following statements is incorrect? a. A stock is a certificate representing partial ownership in a corporation. b. Like debt securities, common stock is issued by firms to obtain funds. c. Stocks are issued by corporations to raise short-term funds. d. The secondary stock market enables investors to sell stocks that they had previously purchased. ANS: C 2. Firms assume ____ risk when they issue preferred stock than when they issue bonds. The payment of dividends on preferred stock ____ be omitted without the firm being forced into bankruptcy. a. more; can b. less; can c. more; cannot d. less; cannot ANS: B 3. The purpose of a lockup provision is to: a. keep individual investors from buying and selling stock. b. prevent downward pressure on the stock's price. c. increase the number of outstanding shares. d. allocate a larger proportion of stock to institutional investors. ANS: B 4. ____ occurs when an investment bank allocates share from an IPO to corporate executives who may be considering an IPO or other business that will require the help of an investment bank. a. Flipping b. Spinning c. Laddering d. None of the above ANS: B 5. A firm will typically attempt to sell shares from a secondary offering a. far below the prevailing market price. b. far above the prevailing market...
Words: 2327 - Pages: 10
...| | Smith’s Information Services1234 Smith Inc. Blvd Lexington, MA. 12345 Phone: 781-456-7890 Fax: 781-456-1234 E-Mail: CIO@SmithsIS.com Web: www.smithsIS.com | | | | | | 16NOV2013 | OUTSOURCING | proposal | | Introduction With the rise in competition in our industry over the last two years, we have seen a marked decrease in the profits recognized by this organization as a result. In order to become more competitive the board of directors has mandated a company wide reduction in cost and overhead. As CIO of this company’s data center I have been researching the feasibility of outsourcing our data center. In an attempt to reduce the growing cost of maintenance, labor costs, utilities, and other associated overhead of our ever-growing data facility. The facility we have is currently adequate for our immediate needs. However, the problem lies in the rate costs our increasing with every expansion we pursue. If we are to maintain a competitive edge in this market we MUST find a way to mitigate these costs while still enabling our growth potential. The answer to this seems to be outsourcing our data center to facilitate this growth. Purpose The outsourcing of our data center can enable this company to continue its growth while limiting the rising costs associated with that growth. By outsourcing our data center operations we can reduce overhead costs and virtually eliminate the ever-increasing variable costs associated with our current data handling...
Words: 3464 - Pages: 14
...ARTICLE 1: COMMODITY Vietnam Black Pepper ARTICLE 2. QUALITY AND SPECIFICATION -Moisture: 12% Max - Impurity:0.03% max -Shelf Life: 2 years - Place of Origin: China (Mainland) - Style: Dried - Color: black - Processing Type: Raw ARTICLE 3. QUANTITY 100 000 MT more or less 5% at Seller's option ARTICLE 4: PRICE 4.1 Unit Price 4.2 Total price: 4.3 Invoicing: based on actual net weight of the shipment upon the inspection at loading port ARTICLE 1: COMMODITY TOYOTA LAND CRUISER DIESEL ARTICLE 2. QUALITY AND SPECIFICATION Condition: New Type: SUV Fuel: Diesel Gear Box: Automatic Made In: Japan Steering: Left Drive: AWD Brand Name: TOYOTA Place of Origin: Japan Model: LANDCRUISER 200 Year: 2014 EXTERIOR COLORS: WHITE PEARL, BLACK, DARK GREY, SILVER METALLIC, BEIGE INTERIOR COLORS: SHELL / GREY ARTICLE 3. QUANTITY ARTICLE 4: PRICE 4.1 Unit Price 4.2 Total price: 4.3 Invoicing: based on actual net weight of the shipment upon the inspection at loading port Packaging Detail: 02 UNITS IN 40" THRU SEA FREIGHT ARTICLE 1: COMMODITY toshiba wall mounted split air conditioner ARTICLE 2. QUALITY AND SPECIFICATION Condition: New Brand Name: BAOHUA Place of Origin: Guangdong China (Mainland) Use: Room Power Source: Electrical Power Type: AC Type: Split Wall Mounted Air Conditioners Cooling/Heating: Cooling/Heating Certification: CB,CE,EMC,EMF,RoHS Capacity (btu): 30000 COP: ...
Words: 1071 - Pages: 5
...Amity global business school, singapore Problem structuring methods Submitted by:- Manav dhall, batch- charlie Given by – prof. kumar Problem Structuring and Problem Structuring Methods * What is Problem Structuring ? 1. Problem Structuring Methods are a broad group of approaches that are used to handle a problem . 2. Its purpose is to assist in structuring a problem instead of directly solving it . 3. These methods are Participative and Interactive in Nature. * Ways to Structure the Problems? 1. There are two approaches used in Problem Structuring :- a.Hard OR – This the classical, traditional and old method. b.Soft OR – This is the modern approach which aims at applicability of technique rather than correctness of the technique. 2. Here in this assignment we will be using Soft OR because of the following reasons:- * Tangible * Easy to Explain * Easy to Use * Soft OR Techniques? Example (Hypothetical Situation) : * Traffic signals is a major problem in Delhi. Sometimes referred to as a "Traffic Light" or "Stop Light", these are the red, yellow and green lights that direct traffic at intersections. The correct term for this type of light is "Traffic Signal" or "Illuminated Traffic Signal". Traffic signals is a major problem * Out-of-order meters or kiosks * Malfunctioning traffic lights * Traffic obstruction / blocked street * Signage missing / unreadable ...
Words: 1568 - Pages: 7
...Competition Bikes, Inc.Financial AnalysisJET2 Task 3 Introduction Competition Bikes, Incorporated (CBI) has decided to weigh their options for expansion into Canada by either acquiring or merging with Canadian Bikes, Inc. This report will discuss the proposed expansion and make recommendations based on the company's capital structure. Capital structure can be described as how a business finances its assets. There are two main types of capital: Equity and debt. Capital structure is usually a mix of debt, preferred stock, and common stock that the company can use for expansion and to remain financially healthy. The key is to choose the right mix in order to maximize shareholder return. A1. Capital Structure Capital structure is generally defined as how a company finances its assets. It is measured as a percentage of debt and equity (common and preferred stock). Potential investors tend to look positively on a company that has more equity and less debt. The best capital structure approach for CBI to take is to implement the 50% Preferred and 50% Common Stock scenario. This alternative provides the best overall way to improve CBI's financial position with strong capital structure while maximizing shareholder return. A1a. A review of Canadian Bikes data over five years indicates consistently increased earnings before interest and taxes (EBIT), increased net profit, and increased shareholder returns (EPS). Offering the 50% preferred and 50% common stock results in the highest...
Words: 2611 - Pages: 11
...Task 5 A. Jenny is looking for the best option for daycare for her son. She lives in a small town, so her options are limited to two daycare centers. Option A is a home-based facility which charges $9.00 per hour that the child is at the home. Option B is a center-based facility which charges $150 for the first 20 hours and then charges $10 per hour thereafter. Due to a new promotion, Jenny will be required to work more hours away from home. Which facility will cost less for Jenny to have her son in daycare for a work week (40 hours)? B. I. h = how many hours of child care is needed = 40 f = the flat hourly rate charge t = total amount due for the week Option A: f * h = t a. 9 * 40 = $360 Option B: 150 + f(h-20) = t, for h >=20 b. 150 + 10(40-20) = $350 150 = t, for h < 20 c. 150 = total II. I set the hours to "h", the hourly fee to "f" and the total to "t". a. Option A: This option only has an hourly fee for each hour. The fee is $9 and the amount of hours is 40 so I multiplied the hours by the fee. b. Option B: This option has a flat rate of $150 for the first 20 hours and then an hourly rate of $10 thereafter. For the first equation that refers to over 20 hours, I subtracted 20 hours from the total time, multiplied it by $10, and then added it to $150. For the second equation that refers to any amount less than 20 hours, the total is always going to...
Words: 531 - Pages: 3
...through the use of a mixture of debt and equity (Investopedia US, 2013).” A company’s debt is its long-term loans and bonds, while its equity is considered to be common and/or preferred stocks. A company looking to expand must ensure that it has the right capital structure to maximize return on investment, increase cash flow, and pay off debts. For CB, there are five options of capital structure for them to analyze to ensure that they have the highest earnings per share (EPS) to keep shareholders happy, and a strong net income to support the business. The reason that EPS will be used to gauge which capital structure is because it shows the company how their financial decisions will impact their shareholders and stockholders. EPS is a strong indicator of how financially sound a business is, which is why a capital structure with a high EPS is so important. As long as the shareholders continue to make a profit they will continue to invest in the company and buy more shares. While EPS is important the company must also weigh the inherent risks associated with each capital structure option. Capital structure option 1 uses 9% bonds only to fund the expansion....
Words: 3370 - Pages: 14
...in part in electronic,paper or other forms without written permission is prohibited. i Table of Contents Chapter 20: Options and Corporate Finance................................................................................1 Overview................................................................................................................................1 20.1 Financial Options...........................................................................................................2 Call Options ......................................................................................................................2 Put Options......................................................................................................................5 American, European, and Bermudan Options.................................................................6 More on the Shapes of Option Payoff Functions.............................................................7 20.2 Option Valuation............................................................................................................8 Limits on Option Values...................................................................................................8 Variables That Affect Option Values..............................................................................10 The Binomial Option Pricing Model ...............................................................................12 . Put-Call...
Words: 20387 - Pages: 82
...electronics, remember that consumers… • … are strongly influenced by unusual prices and offers. The visibility of these prices is very important: a key factor in consumer choice is whether an individual believes they are getting some kind of reduction in price. If they believe this, they are more likely to buy it as they see themselves as making a ‘profit’ on the purchase. Something ‘half price’ or in particular ‘free’ (for example ‘tax free’) can be even more appealing. Work with retailers, for example through voluntary agreements and codes of conduct, to promote energy efficient products. • … are very averse to loss. People want to avoid loss even more than they value additional gains, so use policy that imposes visible losses – like extra tax - even if quite small relative to the price. This is more influential than a similar-sized positive incentive, so can be used to make policy more effective at a small policy cost. The same is true for describing relative qualities. For example, labelling that highlights the additional running costs of less efficient product (compared to the most-efficient product) will have a bigger impact than labels that highlight the savings potential of a more efficient...
Words: 2473 - Pages: 10
...is a small yogurt manufacturer selling refrigerated yogurt cups. Natureview has gained its success by differentiating from competitors with its all-natural recipes and long shelf life (50 days compared to competitors’ average of 30 days). It has grown its revenue from less than $100,000 to $13 million in 10 years. Because of their high quality products, great taste, natural ingredients, strong reputation and established channel strategy selling only in natural foods stores, they have developed into national distribution and shared leadership in this channel. Their marketing strategy is creative, low-cost “guerilla marketing” which has proven successful with the targeted channel. Part of Natureview’s success is also due to the building of strong relationships with the leading natural food retailers. Growth Strategies Despite its success and growth Natureview Farm has struggled to maintain a consistent level of profitability. In 1997 William Wagner, financial officer (CFO), arranged for an equity infusion from a Venture Capital (VC) company, and now the VC needs to cash out of its investment leaving Natureview management with two options: either find a new investor, or prepare for acquisition. For both options an increase in revenue is critical in order to gain the highest valuation of the company. The Natureview management therefore needs a plan to grow their revenue with over 50% to reach $20 million in revenue by 2001 (current year 2000). The two primary types of growth strategies...
Words: 1535 - Pages: 7
