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Sir
I am Noufal, have doubt regarding the Strike price.
How we select the appropriate Strike price.?There is no ‘best’ strike price when using options – different strike prices will fix different ‘worst’ outcomes, but will have different premium costs (which might be ‘wasted’ if the option is not exercised.
Unless the question specifies, ideally should you calculate for each exercise price and then discuss. However if you are short of time then just calculating for one exercise price (and discussing) will get most of the marks because what the examiner is most wanting is to see that you understand what options are and how they work.
Dear John,
thank you for the great lectures.
I just have a quick question which I might have missed during the lectures. When dealing with collars, how would I know which option premium to select for the max rate and min rate?
Am I correct in saying that for a max rate you will always select the put option premium, and for the min rate always select the call option premium.
I understand the concept that for borrowing you will always buy put and sell call options, I am just struggling to understand which one will be that call option you are selling and which one will be put option you are buying.
Many thanks
Never mind, just checked the notes and saw that you stated there, that to set the min is to sell a call, blush. hehe.
Thanks anyway. Really appreciate your lectures and notes 🙂
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