- This topic has 6 replies, 2 voices, and was last updated Apr-176:04 am by
Sophie Macon.
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Up::1
Hi again,
After some more thinking, I now believe I misinterpreted the meaning of an option on a forward – where I first thought it meant that you had the right to enter into a specific predetermined forward at the expiration of the option, I now think that it means you have the right to enter a forward at expiration of the option, and the forward will be priced as of that moment. I was unable to find a clear explanation of options on forwards, so can someone please let me know if this is correct? Thanks!
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Up::1
Thanks for having a look. Currently for level 2, we have “LOS 50.i: Demonstrate how the put-call parity for options on forwards (or futures) is established.”
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Up::0
I now believe I misinterpreted the meaning of an option on a forward – where I first thought it meant that you had the right to enter into a specific predetermined forward at the expiration of the option, I now think that it means you have the right to enter a forward at expiration of the option, and the forward will be priced as of that moment. I was unable to find a clear explanation of options on forwards, so can someone please let me know if this is correct? Thanks!
@mm12 – option on forward means you have the right to enter the forward at a predetermined strike price (your forward is now the underlying asset, I believe this is the source of your confusion). And for call option on a forward, upon expiry, if the forward price is higher, you exercise your right to purchase that forward at the (lower) strike price to make instant profits.Hope this helps
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