Good Afternoon 9/13

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Good Afternoon 9/13

• Continue with discussion of options
• Do exercise on Google put from last time
• Discuss my bets on Google and then bets on Best
  Buy
• Discuss the efficient market theory
• More on options

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But first, some Greenspeak

• Introduce how the Fed feels about questions from
  our elected officials.

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• Mr. Greenspan sometimes delights in his ability
  to obfuscate "I know you believe you understand
  what you think I said," he once quipped. "But I
  am not sure you realize that what you heard is
  not what I meant."

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Key option terms

• Calls and Puts
• Premium
• In the money at the money out of the money
• Exercise
• Strike price
• Derivative
• Risk
• Determinates of option prices

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• Spot Price
• CBOE (Chicago Board Options Exchange)
• Zero Sum Game
• Hedging vs. Speculating
• Writing vs buying calls
• Covered vs. Naked Calls

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Determinants of option prices

• Date of expiration relative to current date
  farther out into the future the more likely the
  option will get in the money the _______ the
  premium (all else constant)
• Spot price vs. Strike price proximity of the two
  the farther the option is in the money, the
  _____ the premium.
• Volatility of underlying stock price the more
  volatile the underlying stock price, the ______
  the premium. Why?

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Also, be sure to discuss what determines the
tightness of the relationship between changes
in the spot price and changes in the premium
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