Talk:Call option

From Wikipedia, the free encyclopedia
Jump to: navigation, search
WikiProject Finance (Rated Start-class, High-importance)
WikiProject icon This article is within the scope of WikiProject Finance, a collaborative effort to improve the coverage of articles related to Finance on Wikipedia. If you would like to participate, please visit the project page, where you can join the discussion and see a list of open tasks.
Start-Class article Start  This article has been rated as Start-Class on the project's quality scale.
 High  This article has been rated as High-importance on the project's importance scale.
 


There are no labels/title on the y-axes of those graphs. dave 04:23, 23 April 2006 (UTC)

Good call. The payoffs are usually in $'s or other currencies, so anybody familiar with the topic automatically assumes this, but the person who made this was obviously assuming too much for an encyclopedia. I'd made some graphs earlier, that happen to avoid this problem, but don't look so nice so I only posted one (on covered call). Feel free to give esthetic guidance, and sooner or later I'll get around to replacing those on this page. Smallbones
Thank you for noting, Dgrant and Smallbones. I am the person who made this.
I don't believe I was assuming too much. But this is a composite graph, and what I do assume is that by adding two additional labels, the graph would seem overloaded with redundant information, when it is already explained in the legend that the two drawn lines are "payoff" and "profit" (given a certain "share price at maturity").
Also, using a certain currency (USD, EUR, GBP, etc.) may be a bias in favor of a certain country or region, when anything that is accepted as a currency can be used. For this reason, no currency is currently specified. A solution could be to specify that all units are in "Currency".
I am happy to read your suggestions. Please comment on the above, and if you suggest a solution, I will make these changes as soon as possible. Or feel free to make the changes yourself/add new graphs.--Mfolozi 01:13, 26 June 2006 (UTC)

Could someone add a section on how corporate actions (merger, spinoff, etc) affect call options? Mdozturk 19:34, 21 November 2006 (UTC)

Question[edit]

  • (if you know the answer, please put it in the article)


Typically, does an investor pay a premium per share, or a set premium to purchase as many shares as he/she desires? Also, what is the ballpark range for a premium? AdamBiswanger1 02:01, 9 June 2007 (UTC)

Question regarding S & K[edit]

i believe whoever wrote the Wikipedia articles titled "call option" and "put option" got confused about the two, and mixed the places of K and S in the formulas presented on each page. please can some expert check this? Merton's Nobel Prize winning article written in 1973 gives the formulas with K and S switched! —Preceding unsigned comment added by 134.10.121.181 (talk) 04:30, 27 September 2007 (UTC)

Um, the formula looks OK to me. The payout of a call is indeed the amount that S is greater than K at expiration as stated in the article. Can you be more specific on what you'd like to change? Ronnotel 14:26, 27 September 2007 (UTC)

Duplicates material on Option (finance)[edit]

Much of this article duplicates material found in Option (finance). I'd like to rewrite this and bring the articles into line with each other. Ideally, this article should just discuss what is unique about calls and leave the majority of the discussion to Option (finance). Any comments? Ronnotel 14:29, 27 September 2007 (UTC)

GA: I'm currently learning about hedge funds and I found the duplicated material helped flow between the two and found it helpful for my understand; I should imagine by the style of writing it is the same person who wrote both articles. - anyways I came on here just to say props for the information and thank you for mantaining it, good job guys :] explained a lot of stuff that a GBP17 book has failed to do, so far -.- —Preceding unsigned comment added by 80.42.151.102 (talk) 15:39, 18 January 2009 (UTC)

Graphs[edit]

To a non-expert like myself, these graphs are useless. Please, label the axes with something. "Money" and "time," or whatever they represent. Right now they're gibberish. Mrwriter —Preceding comment was added at 00:30, 25 October 2007 (UTC) +1 I agree, they only confuse —Preceding unsigned comment added by 71.192.227.110 (talk) 21:16, 19 March 2008 (UTC) +1 more, I also agree. Honestly, the labels are much worse than nothing. "Price at maturity" is written way on the right end of the x-axis as if it were a value on the axis, but it is actually the variable. The x-axis label should look like this:

<---------------------------------------------------------->
Cheaper           Same as strike price        More expensive
                Stock price at maturity

Also, the legend should not call them "profit line" and "payoff line", just call them "profit" and "payoff". Adding the word "line" makes me think it is something fundamental, like the break-even line on a graph. I assumed the "profit line" was the line above which all outcomes were profitable, that red herring kept me confused for like 30 seconds.

I would fix it, but I just finished my shift at work and no longer need to kill time.18.248.5.33 (talk) 03:02, 20 March 2009 (UTC)


Question regarding the example[edit]

I'm only a soon to be engineer, taking my very first economy/management course right now, so I'm sure I've missed something. This is what the article currently reads: "Sumner, however, did not do so well. Sumner did not already own ABC Corp stock, so when Chris exercised the contract Sumner had to buy the stock on the open market, at $6000. Sumner had already earned the $500 premium for the contract, so the total loss for Sumner was $5500". But oughtn't Sumner recieve $5000 when selling the stocks as well? Reducing the loss tenfold (elevenfold actually). This would also make more inuitive sense to me: playing the stock market like this, when someone wins, someone else loses. It's a zero-sum game. Please correct me if I've misunderstood. —Preceding unsigned comment added by 80.216.205.65 (talk) 18:45, 25 September 2010 (UTC)

Valuing a stock option[edit]

This article runs out of steam halfway, as the expert author runs away with himself in his enthusiasm. Ignoring the esoteric paragraph of mathematical symbols, and just looking at the second example of value, [Example 2 of valuing a stock option] the explanation states :

" Today the option is worth $19.45. With a theoretical call premium now of 73 cents. The call premium tends to go down as the option gets closer to the call date. And it goes down as the option prices rises in value relative to the stock price. IE the 19.45 the option is now worth is 30% (19.45/ $64) of the price per PNC shares. In August it was 23% (11.75/$50.65). The lower percentage the option comprises of the stocks price the more upside the investor has, therefore a premium will be paid for it. ",

but this is not very clear. Presumably he means 'today with an imaginary price of say, $64 we can say...the option might be priced at , say, 19.45 and have a call premium of 73 cents.etc' Perhaps one of your editors would re-write the paragraph to simplify it . Thank you — Preceding unsigned comment added by Sandkicker10 (talkcontribs)

Agree with Sandkicker Statoman71 (talk) 20:31, 27 February 2014 (UTC)