Options - Calls and puts on the financial markets and in the Everyday Life

Szaz, Janos

An option is the right, but not the obligation to do something in the future. In the markets these actions are, at their most simple, buying something (call option) or selling something (put option) at a fixed price on a future date
Options are comfortable vehicles for managing uncertainty, not only in markets, but also in our everyday lives. Instead of making fixed agreements, we often allow ourselves some room for manoeuvre (we will meet next Monday - if nothing happens to prevent it). This is very important in business: the power to postpone an investment, to enlarge or even terminate an activity can add substantial value to a business project. Since Black, Scholes and Merton outlined the principle of how these options can be correctly valued (dynamic delta hedging), not only have the financial markets changed markedly, but so too have corporate valuation and financial risk managment among others. Arbitrage pricing has been added to the traditional supply-demand analysis of economics. Options are the basic tools of measuring the future volatility of interest rates, currency and stock prices - expected by market participants.

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