Comments

  1. avatar says

    Hello Sir

    Thank you for the lectures. I have a question about eg.6 that Martin own only 1000 shares so how he can sell 4080 options, I mean how and when he got that much of call optin rights. Does it mean he can sell any number of options if so how he got that rights for options?. Please give me some explanation.

    Many thanks

    • Profile photo of John Moffat says

      Just as with so many financial instruments, you can buy first and sell later (in which case you make a profit if the price increases) or you can sell first and buy later (in which case you make a profit if the price falls). You do not need to already own any to be able to sell – it simply means that you have to buy at some stage later.
      (The same applies to currency and interest rate futures, as you will see in the later chapters.)

  2. avatar says

    @IGOLO from the lecture its clear that you would sell a call option say today while the share price is high, implying even the call option would be high, then when the share price fall in that future, its also assumed the call option which you sold while prices were high’s price would fall, then you buy it back. making a profit. However the trick is in how many of the call options do you need to compensate you for the loss in (falling share prices), hence the simplified Delta Hedge!

    It then in example 6 meant martin had to sell 4080 call option which would protect him against the future expectations that prices will fall!

    In hind sight if the prices do indeed go up instead of fall , Martin’s share market value increases, and the call option which he sold at the time 0 when he thought prices will go down becomes expensive to buy back. its a give or take situation. Like insurance for your car. You insure thinking if you get an accident someone replaces your car, however if nothing happens to your car all your life the insurance co gains, but if you indeed smash it its replaced!.

    This is interesting indeed.

    • Profile photo of John Moffat says

      If you own shares and you are worried that the price of the share might fall, then the most sensible thing to do would be to buy a put option (there is no such thing as a pull option :-) ). The put option will give you the right to sell the share at a fixed price. So…..if the share price does fall below that price, then you are protected because you still have the right to sell it at the fixed price.

  3. avatar says

    Hello Sir,

    I love your lectures, really very well explained, so thank you very much.
    I have a question in relation to Delta Hedge, it assumes that only current MV of share changes, but N(d1) is constant. How could it be when we use Current MV of shares in calculations of N(d1), so it should change as well.

    • Profile photo of John Moffat says

      @cara, That is very true, which is why delta hedges need to keep being changed (and this is stated in the lecture).
      That is the reason for all the other Greeks, but you are only expected to know what they measure and you are not expected to be able to calculations with them.

  4. avatar says

    HELLO!!!

    Sir..kindly let me know how he is going to gani by selling call option???if share price is falling…value of call option also falling…..he would have purchased call option at higher price….and by selling it at lower price it wont be loss???

    Regards

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