130. Options pricing.
Options are derivative contracts that give the holder the right, but not the obligation, to buy or sell the underlying instrument at a specified price on or before a specified future date. Although the holder (also called the buyer) of the option is not obligated to exercise the option, the option writer (known as the seller) has an obligation to buy or sell the underlying instrument if the option is exercised.
Depending on the strategy, option trading can provide a variety of benefits including the security of limited risk and the advantage of leverage. Options can protect or enhance an investor's portfolio in rising, falling and neutral markets. Regardless of the reasons for trading options or the strategy employed, it is important to understand the factors that determine the value of an option. This tutorial will explore the factors that influence option pricing, as well as several popular option pricing models that are used to determine the theoretical value of options.
An option’s premium has two main components: intrinsic value and time value.
Intrinsic Value (Calls)
A call option is in-the-money when the underlying security's price is higher than the strike price.
Intrinsic Value (Puts)
A put option is in-the-money if the underlying security's price is less than the strike price. Only in-the-money options have intrinsic value. It represents the difference between the current price of the underlying security and the option's exercise price, or strike price.
Time Value
Time value is any premium in excess of intrinsic value before expiration. Time value is often explained as the amount an investor is willing to pay for an option above its intrinsic value. This amount reflects hope that the option’s value increases before expiration due to a favorable change in the underlying security’s price. The longer the amount of time available for market conditions to work to an investor's benefit, the greater the time value.
131 Warsaw stock exchange
Polish capital market traditions go back to 1817, when the Warsaw mercantile exchange was established. Following the overthrow of poland's former communist regime in 1989, WSE was created as a joint-stock company on April 12, 1991 by the state treasury pursuant to the foundation act for giełda papierów wartościowych w warszawie sa (the Warsaw stock exchange company).
WSE was organized from its inception as a modern stock exchange, supported by electronic trading and dematerialized registration of securities, laying a foundation for ongoing development. WSE held its first trading session on April 16, 1991 with five listed companies, all of which were formerly state-owned companies that had been privatized.
In 1999, Poland reformed its pension system, which contributed to an increase in domestic institutional investment, and in 2004 it joined the EU. These developments helped to boost trading volume in subsequent years.
The WSE group pursues activities on the financial market and the commodity market.
The financial market includes trading in equities, derivatives, debt instruments and other financial instruments, as well as listing and information services.
The commodity market includes trading in electricity, natural gas (spot and forward) and property rights in certificates of origin of energy, as well as operation of the register of certificates of origin, clearing of transactions, settlement of exchange commodities and management of the resources of the clearing guarantee system.
The group organizes and operates trading:
On WSE markets
WSE main market (trade in equities, equity-related financial instruments and other cash markets instruments as well as derivatives);
Newconnect (trade in equities and equity-related financial instruments of small and medium-sized enterprises);
Catalyst (trade in corporate, municipal, co-operative, treasury and mortgage bonds operated by WSE on the regulated market and in the alternative trading system for retail clients);
On the market operated by bondspot
Treasury bondspot Poland (wholesale trade in treasury bonds);
Catalyst (trade in corporate, municipal, co-operative, treasury and mortgage bonds operated by bondspot on the regulated market and in the alternative trading system for wholesale clients);
On the markets managed by the polish power exchange
Energy markets (trading in electricity with physical delivery on the following markets: intra-day market, day-ahead market, commodity forward instruments market, electricity auctions);
Property rights market (trading in property rights in certificates of origin of electricity);
Co2 emission allowances market (trading in co2 emission allowances);
Gas exchange (trading in natural gas with physical delivery on the intra-day market and the commodity forward instruments market).