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Purchase price of an option
In the money
an option where exercise would generate a positive cash flow
Out of the money
An option if exercised would produce a negative cash flow. Out of the money options are therefore never exercised
At the money
An option where the exercise price equals the asset price
Strategies to limit the risk of a portfolio
A combination of two or more call options or put options on the same asset with differing exercise prices or times to expiration.
An option issued by the firm to purchase shares of the firm’s stock.
Asian options are options with payoffs that depend on the average (rather than final) price of the underlying asset during at least some portion of the life of the option. For example, an Asian call option may have a payoff equal to the average stock price over the last three months minus the exercise price, if that value is positive or zero.
Currency-translated options have either asset or exercise prices denominated in a foreign currency.
igital options, also called binary or “bet” options, have fixed payoffs that depend on whether a condition is satisfied by the price of the underlying asset. For example, a binary call option might pay off a fixed amount of $100 if the stock price at expiration exceeds the exercise price. The Chicago Board of Options Exchange lists binar y options on the S&P 500, but, to date, trading volume has been limited.
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