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Hi sir,
I understand put and call definition – the right/not obligation to buy or sell
But i find some applications hard to understand.
For ex.
What does this statement say1. A UK company receiving $ in the future therefore wishing to sell $ in future cannot hedge by purchasing $ put options, so they have to purchase £ call options.
Is it because the chart only shows the purchase or selling of £ options !?
2. What does it means to sell put/call options now then buy it later, is it necessary to buy back !?
3. And how does put/call works while using Collar
Thank you
Zamil1. They could either buy $ put options, or buy Pound call options. In the exam it depends what options are available and what currency they are dedominated in (which is what I assume you mean by ‘the chart’).
2. It is possible to sell options now and buy back later (and this is what would happen if they were using European style options and the transaction was earlier than the option date). However in the exam this does not apply – the options are exercised on the date of the transaction.
3. For collars (and for all the above as well) you should watch my free lectures – I explain in detail how options work (and how collars work) in the lectures and the notes that go with them.
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