This course is designed to provide a conceptual overview of the valuation of financial options such as stock puts and calls as well as options on other assets. Although option valuation involves complex math equations, this course focuses on concepts, not formulas. It explains option valuation in terms of logical statements, graphs, and numerical examples. It is intended for executives that may manage staff or consultants involved in options valuation as well as analysts that may want an introduction to the fundamentals of options valuation. It provides a sound fundamental understanding should more in depth study be contemplated.
First, it provides an overview of the provisions of an option contract. Second, it shows the potential gains and losses from option contracts. Third, it covers the relationships among ownership of a stock and options on the stock. Fourth, it explains the conceptual basis of option valuation models, using simple numerical illustrations. Fifth, it discusses the various factors that affect the value of an option. Finally, an actual option valuation model is provided to enable the user to calculate option values. The model requires only very modest Excel skills for the user.
Learning Objectives
- Identify the Risk-Return profile of calls and puts
- Discover the relationships among a stock, a call, and a put
- Identify the factors that affect the value of an option
- Discover the conceptual basis for option valuation
- Discover how to use option valuation models to explain option market prices
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Prerequisites
Prerequisite: Previous experience in corporate finance
Advanced Preparation: None