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ACCA December Exams

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  1. Hello Sir,
    In the example 5 (last one) in this lecture you wrote down that the value of t=0.25 but in calculation you used 0.4.

    Is this correct? Am i missing anything here?

    Thank you

  3. You’ve probably been asked about this multiple times. I understand the calculations and formulae but I’m still trying to get my head around the theory of explaining how the different options work especially at a future date.

    So if the current Value is 290 and exercise price is 260, what does it mean in regards to Call option of 52c and Put option 14c,

    Same goes for example 5, Current value of 150 and exercise price is 180, what does it mean in regards to Call option of 5c and Put option 28c.

    I’ve seen your comments referring to ”buying put options”, I thought we only sell Put Options and Buy Call options?

    • We buy options, and the figures of 52c and 14c in your first example and the costs of buying a call option or a put option.

      You pay for the option – a call option is the right to buy a share at a fixed price, a put option is the right to sell a share at a fixed price. In both cases you are buying the option and will have to pay for it.

  4. Thank you very much for this lecture! I’ve tried firstly to learn this topic from Kaplan complete text, but it was quite difficult for me. After this video lecture I gained an understanding of this topic.

  5. We really appreciate your struggle, specially as you are answering our questions.
    As students ask questions and you answers,its really helps everyone.
    thanks again……

  7. Sir, could you clarify for me what exactly an option buyer is paying? Is he or she paying a premium? Is premium the amount calculated using option pricing model? Are options traded on values calculated using the formula or premium? Could you explain with an example?

    Thank you.

    • The amount you pay to buy the option is the premium and is determined by the Black Scholes formula. You pay the premium whether or not you later exercise the option.
      I work through examples in this and the second lecture.

      • The premium is another word for the price at which the option is traded.
        (Don’t confuse the word with the other use of the word ‘premium’ in other contexts – it is not a premium in the sense of it being extra over and above something else 馃檪 )

        The above is only relevant for share options – real options are not traded, and foreign currency options have a different formula (testing on the formula for these options is no longer in the syllabus).

  8. Am I right to assume that in the case of put option, a shareholder already has a certain amount of shares and as a result, opts for buying a put option so that he or she can sell at a fixed rate?

    Thank You!

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