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A covered call involves selling a call option (“going short”) but with a twist. Here the trader sells a call but also buys the stock underlying the option, 100 shares for each call sold.
The value is defined as the least squares regression against market price of the option value at that state and time (-step). Option value for this regression is defined as the value of exercise possibilities (dependent on market price) plus the value of the timestep value which that exercise would result in (defined in the previous step of the ...
A typical option strategy involves the purchase / selling of at least 2-3 different options (with different strikes and / or time to expiry), and the value of such portfolio may change in a very complex way. One very useful way to analyze and understand the behavior of a certain option strategy is by drawing its Profit graph.
The options trader makes a profit of $200, or the $400 option value (100 shares * 1 contract * $4 value at expiration) minus the $200 premium paid for the call.
A Canary option is an option whose exercise style lies somewhere between European options and Bermudian options. (The name refers to the relative geography of the Canary Islands .) Typically, the holder can exercise the option at quarterly dates, but not before a set time period (typically one year) has elapsed.
In this case, if Firm A charges , Firm B has an incentive to enter the market, since it can sell a positive quantity of good X at a price above its marginal cost, and therefore make positive profits. In order to prevent Firm B from having an incentive to enter the market, Firm A must set its price no greater than g c {\displaystyle gc} .
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