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Options basics and option payoff valuation intuition

Derivatives / derivatives and risk management · Lesson 3 of 4

Lesson 3 of 4

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Lesson 3 of 4 · Derivatives / derivatives and risk management

Options basics and option payoff valuation intuition

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By the end you’ll be able to

describe the basic features of call and put options, including exercise price, expiration date, premium, American versus European exercise, and long versus short positions
calculate and interpret the payoff and profit of long and short call and put positions at expiration
distinguish among in-the-money, at-the-money, and out-of-the-money options and relate moneyness to exercise value and time value

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calculate and interpret simple upper and lower bounds for option values and apply put-call parity to European options on non-dividend-paying and dividend-paying assets at a basic level

describe option exercise decisions and the circumstances in which early exercise may or may not be optimal

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