Support our online development, and advance our onground research initiatives in free market economics, as we seek to showcase the brightest Next-Gen minds.
THE ME-P DISCLAIMER: Posts, comments and opinions do not necessarily represent iMBA, Inc., but become our property after submission. Copyright © 2006 to-date. iMBA, Inc allows colleges, universities, medical and financial professionals and related clinics, hospitals and non-profit healthcare organizations to distribute our proprietary essays, photos, videos, audios and other documents; etc. However, please review copyright and usage information for each individual asset before submission to us, and/or placement on your publication or web site. Attestation references, citations and/or back-links are required. All other assets are property of the individual copyright holder.
In, At, and Out-of-the-Money
By William H. Mears; CPA, JD
A call option is in-the-money if the market price of the stock is higher than the exercise price of the option.
If the market price of the stock was the same as the exercise price of the call option, the option would be at-the-money.
If the market price of the stock was lower than the exercise price of the call option, the option would be out-of-the-money.
Examples:
On June 1, XYZ stock has a market value of $40. The physician-investor bought one XYZ call (representing 100 shares) with a $70 strike, expiring September 16 for $3.
On September 16, at expiration, consider the following:
1. Stock price: $47
Exercise the option, because the strike price is greater than the stock price. Pay $40 for 100 shares. The gain (loss) on position = ($47 – ($40 + $3) × 100) = $400.
2. Stock price: $35
Put option
On June 1, an investor sells XYZ for $40 a share. The investor also bought one put (representing 100 shares) with a $40 strike price and an expiration date of September 16 for $2.
On September 16, consider two scenarios:
1. Stock price: $47
Do not exercise the option, because the stock price is greater than the strike price. The investor would receive $40 for the stock worth $47 if exercised.
Therefore, allow the option to expire. Gain (loss) on the position is ($0 – $2) × 100 = $200.
2. Stock price: $35
Exercise the option, because the stock price is less.
Do not exercise the option, because the stock price is less than the strike price. The investor would have to pay $40 for the stock worth $35 if exercised. Therefore, allow the option to expire. Gain (loss) on position is ($0 – $3) × 100 = $300.
Conclusion
What has been your investing success, or failure, with options?
Related Information Sources:
Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759
Financial Planning: http://www.jbpub.com/catalog/0763745790
Risk Management: http://www.jbpub.com/catalog/9780763733421
Healthcare Organizations: www.HealthcareFinancials.com
Administrative Terms: www.HealthDictionarySeries.com
Subscribe Now: Did you like this Executive-Post, or find it helpful, interesting and informative? Want to get the latest E-Ps delivered to your email box each morning? Just subscribe using the link below. You can unsubscribe at any time. Security is assured.
Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos
Share this:
Filed under: Investing, Portfolio Management | Leave a comment »
The Leading Business Education Network for Doctors, Financial Advisors and Health Industry Consultants 