A call or put gives its holder a right while its writer takes the corresponding obligation. That difference produces a payoff with a kink and makes the premium part of the profit calculation. This lesson calculates call and put outcomes and explains exercise rights. It compares the payoff with a forward before later pricing models add uncertainty and discounting.
In this lesson
- Learning objectives
- Rights, obligations, and payoffs
- Moneyness, value, and exercise
- Payoff and profit have different zero points
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