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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 ...
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 lookback option is a path dependent option where the option owner has the right to buy (sell) the underlying instrument at its lowest (highest) price over some preceding period. A Russian option is a lookback option that runs for perpetuity. That is, there is no end to the period into which the owner can look back.
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.
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.
Producers sell homogenous goods; All firms are price takers; Perfect information; No barriers to enter and exit; All firms have relatively small market share and cannot influence price; As all firms in the market are price takers, they essentially hold zero market power and must accept the price given by the market.
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