Minimum and Maximum Values for Options
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American type- Minimum Value: Please see the link here: I have had difficultites in trying to memorize these values since I cannot understand the rationale behind it. However, that would mean that maximum price of a put option minimum value of an American call would actually be lower than the minimum value for a European call — which makes no sense because an American call which can be exercised anytime is obviously not going to be worth less than a European call which can only be exercised at maturity.
Hence, we adjust the minimum value of the American call upwards by taking time value into account. Its the max possible value for a call, which requires the minimum possible exercise price 0. From my understanding, this value is the intrisic value of the option, not the option Premium- the actual cash you spend on the option. THat is quite complicated calculation and require several inputs i.
For example, value investors that follow fundamental analysis look at both qualitative business model, governance, target market factors etc. An option is usually never worth less than what an option holder can receive if the option is exercised. Not looking forward to black scholes when we get past level 1: The options premium is determined in the market by the usual market process.
Ok Maximum price of a put option am maximum price of a put option arguing your point. They are totally different definitions! The first question about American call and put option can be answered by an assumption about the stock: Skip to main content.
Be prepared with Kaplan Schweser. Can anyone help maximum price of a put option explain this, I have been confused much: Study for Success in Kiakaha May 12th, 8: JonnyKay May 13th, Kiakaha May 13th, 1: JonnyKay May 13th, 1: Hope that helps man!
Kia, From my understanding, this value is the intrisic value of the option, not the option Premium- the actual cash you spend on the option. Here is the link for definition: Kiakaha May 13th, 8: JonnyKay, that was great, thanks!
JoeyDVivre May 13th, 8: Boardmember Charterholder 8, AF Points. Cinderella May 14th, 4: Willlian Oct 12th, 4: Hope it can make a little sense.