Go Back   ManagementParadise.com | Management & Business Education Learning Platform Resolve Your Query - Get Help and discuss Projects > Financial Management ( FM )

BLIGATION OF THE OPTION WRITER AND BUYER

Discuss BLIGATION OF THE OPTION WRITER AND BUYER within the Financial Management ( FM ) forums, part of the Resolve Your Query - Get Help and discuss Projects category; OBLIGATION OF THE OPTION WRITER AND BUYER The writer is legally obligated to perform according to the terms of the ...

Reply

 

Thread Tools Display Modes
BLIGATION OF THE OPTION WRITER AND BUYER
Old
 (1 (permalink))
Sunanda K. Chavan
sunandaC has a spectacular aura aboutsunandaC has a spectacular aura aboutsunandaC has a spectacular aura about
 
sunandaC
Management Paradise Guru
 
Status: Offline
Posts: 6,680
Join Date: Jul 2010
BLIGATION OF THE OPTION WRITER AND BUYER - October 8th, 2010

OBLIGATION OF THE OPTION WRITER AND BUYER

The writer is legally obligated to perform according to the terms of the option. On the other hand, the buyer of the option has bought a write to exercise the option and is under no obligation to exercise the option. He can conveniently let the option lapse on the date of expiration of the option.

The significance of this feature of an option is explained through the following example.

------------------------------
Example

Suppose you buy a 100 ITC 650 Call option contract. During the expiration period, the stock price does not appreciate enough to cover even the premium paid, i.e., you do not gain anything by exercising the option. The options contract confers on you the right to either invoke the contract or let it lapse. Invoking the contract means – calling upon the writer to deliver the stock at the contract price.


This would be futile as this stock is available at equal to or even less than the exercise price in the market. By letting the option lapse the buyer gets out of the contract, as he is not obligated to perform.


However, the writer or the seller is under the obligation to perform right up to the expiry of the cont6ract whenever called upon buy the buyer of the option to do so.

---------------------------------
Advertisements

Friends: (0)
Reply With Quote
Re: BLIGATION OF THE OPTION WRITER AND BUYER
Old
 (2 (permalink))
Rose Marry
rosemarry2 is an unknown quantity at this point
 
rosemarry2
Management Paradise Guru
Status: Offline
Posts: 2,125
Join Date: Apr 2016
Re: BLIGATION OF THE OPTION WRITER AND BUYER - April 15th, 2016

Quote:
Originally Posted by sunandaC View Post
OBLIGATION OF THE OPTION WRITER AND BUYER

The writer is legally obligated to perform according to the terms of the option. On the other hand, the buyer of the option has bought a write to exercise the option and is under no obligation to exercise the option. He can conveniently let the option lapse on the date of expiration of the option.

The significance of this feature of an option is explained through the following example.

------------------------------
Example

Suppose you buy a 100 ITC 650 Call option contract. During the expiration period, the stock price does not appreciate enough to cover even the premium paid, i.e., you do not gain anything by exercising the option. The options contract confers on you the right to either invoke the contract or let it lapse. Invoking the contract means – calling upon the writer to deliver the stock at the contract price.


This would be futile as this stock is available at equal to or even less than the exercise price in the market. By letting the option lapse the buyer gets out of the contract, as he is not obligated to perform.


However, the writer or the seller is under the obligation to perform right up to the expiry of the cont6ract whenever called upon buy the buyer of the option to do so.

---------------------------------
hey friend,

I am also uploading a document which will give more detailed explanation on Notes on Characteristics and Risks of Standardized Options.
Friends: (0)
Reply With Quote
Reply

Bookmarks

Tags
bligation, buyer, option, writer
Related to BLIGATION OF THE OPTION WRITER AND BUYER
 

Similar Threads

Thread Thread Starter Forum Replies Last Post
Call Option and Put Option Abhijeet S Financial Management ( FM ) 1 April 12th, 2016 02:39 PM
Script writer, Story Writer, Tv Serial Scripts writter tvpitch JOB OFFERS , Recruitments , Placements !! 0 October 13th, 2009 07:04 PM
Technical Writer/Content Writer (Full-Time/Part time), 5-10 years exp, Delhi/NCR, Noi Maya Raichura JOB OFFERS , Recruitments , Placements !! 0 February 17th, 2009 09:20 AM
Content Writer / Technical Writer (US Shift), 1-5 years exp, Delhi/NCR Maya Raichura JOB OFFERS , Recruitments , Placements !! 0 February 16th, 2009 09:20 PM
buyer behaviour - case study: influence of children on buyer behaviour amit_ahuja Case Studies Hub 1 August 26th, 2007 12:37 AM
 


Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is On
Trackbacks are On
Pingbacks are On
Refbacks are Off


ManagementParadise.com is not responsible for the views and opinion of the posters. The posters and only posters shall be liable for any copyright infringement.



Search Engine Optimization by vBSEO ©2011, Crawlability, Inc.