American option, Portfolio Management

It is an option that can be applied anytime in its lifetime. American options permit option holders to implement the option at any time previous to and including its maturity date, therefore increasing the value of the option to the holder relative to European options, which may only be applied at maturity. Most of the exchange-traded options are American.

As investors have the autonomy to exercise their American options at any point of time during the life of the contract, they are more precious than European options, which may only be exercised at maturity. Take this example: If you purchased a Ford March Call option in March 2005, completed in March of 2006, you would have the right to use the call option at anytime until its expiration date. If the Ford option been a European option, you would only use the option at the expiry date, in March 2006. During the year, the share price would have been highest optimal for use in December of 2005, but you would have to wait to use your option until March 2006, where it could be out-of-the-money and almost of no value.

Posted Date: 8/4/2012 6:56:40 AM | Location : United States







Related Discussions:- American option, Assignment Help, Ask Question on American option, Get Answer, Expert's Help, American option Discussions

Write discussion on American option
Your posts are moderated
Related Questions
how systematic risk and market risk denoted

how to valuate a pharmaceutical company (Adcock Ingram)

In the category of multi-class mutual funds, this is the class that is generally characterized by a loaded fee structure. Class A mutual fund units will normally have a front- or r

Ask question$100 par of a 0.5-year 10%-coupon bond has a price of $102. $100 par of a 1-year 12%-coupon bond has a price of $105. a. What is the price of $1 par of a 0.5-year zer

A tax credit that allow more student and parents to pay for portion of their college expenses in the 2009 and 2010 tax years by increasing the existing Hope tax credit. The highest

Question 1 An investor would like to buy a futures contract on the ALCOA share. Today's price of the ALCOA share is $17. The maturity of the futures contract is in 6 months and

Nelson plc company estimation of beta.

Accelerated Share Repurchase is a specific method through which corporations can again purchase outstanding shares of their stock. The accelerated share repurchase (ASR) is general