Posted on 08 August 2009
Tags: American Bond option, Bond Option, bond selling, call option, callable bond, cap components, conversion of bonds, convertible bond, Embedded option, European bond option, European Put options, exchangeable bond, lock out period, Locking-in price, OTC-traded financial instrument, put option, puttable bond, Relationship with Caps and Floors, spot price, stock option, Strike price, Uses of bond option, zero coupon bonds
In finance, an OTC-traded financial instrument that facilitates an option to buy or sell a particular bond at a certain date for a particular price is referred to as bond option. It is identical to a stock option having only one difference and that is the underlying asset is a bond. Black model is used to value bond options.
The bond’s present market value is known as the spot price while the bond’s future value as per the option is known as the strike price.
Types
Embedded Option
For option-like features of some bonds the term "bond option" is also used. Rather than a separately traded product these are an inherent part of the bond. A bond may have lots of options embedded as these options are not mutually exclusive.
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Posted on 08 August 2009
Tags: at-the-money, call option, commodity, Definition of Strike Price, exercise price, fixed price, forex, Forex Market, Forex trading, FX market, IBM, in the money, market price, Mathematical Formula, monetary value, Moneyness, moneyness of options, out of the money, spot price, stock price, Strike price, underlying security
In options, a key variable in a derivatives contract between two parties is known as the strike price, or exercise price. Where the delivery of the underlying instrument is required by the contract, the trade will be at the strike price, regardless of the spot price (market price) of the underlying instrument at that time.
Definition of Strike Price
The strike price is the fixed price at which the owner of an option is able to purchase the underlying security or commodity, in the case of a call, or sell, it in the case of a put. When the option is exercised it is that price at which the stock will be bought or sold.
Usually the strike price is referred to as the exercise price.
For instance, an IBM May 50 Call has a strike/exercise price of $50 a share. When the option is exercised 100 shares of IBM stock for $50 a share will be bought (Call option) by the owner of the option.
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Posted on 06 August 2009
Tags: buyers, call option, contracts, declining open interest, derivative contracts, Example of Open Interest, futures contracts, increasing open interest, Interpretation of Open Interest, major market moves, open commitments, open contracts, Open Interest, open interest figures, option traders, prevailing price trend, sellers, specific underlying security, traders, underlying security's volatility
Open interest are also referred to as open contracts or open commitments. The total number of derivative contracts are denoted by them, like futures and options, that are currently active on a specific underlying security. The flow of money into the futures market is measured by open interest. There must be a buyer of that contract for each seller of a futures contract. Thus a seller and a buyer are joined to create only one contract. Therefore, we need only to know the totals from one side or the other, buyers or sellers, not the sum of both in order to determine the total open interest for any given market.
The increase or decrease in the number of contracts for that day is represented by the change in open interest that is reported each day, and it is shown as a positive or negative number.
Example of Open Interest
For the IBM call option that hit 90 and expiring in January 2007, on February 10, 2006 the total open interest on was 10251.
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