1. Ã§ÂÂÃ§ÂÂÃ§ÂÂÃ§ÂÂProvide a brief explanation of the factors that affect the price of a call option.
A call option is basically an option of buying a fixed asset at a fixed price before a given date. These assets can come in the form of different financial assets such as bonds, securities and shares. The rate at which you buy the asset is the premium.
If you were to buy an asset with a call option it is a safeguard against future risk. Financial assets are constantly changing in value, making a profit is therefore always a risk as you stand to lose the value of the asset if its value depreciates.
Call options come set at different prices, set over different periods of time; there are many things that would affect the price of them.
If the value of an asset increases and you have purchased a call option on it, you can then buy that asset at its original price at the time that the call option was purchased, as long as this is done within the given period of time when purchased.
Deciding to buy the option within the period of time is known as 'exercising' your option, you can now either sell the asset and make a profit as it is now worth more, or you can sell the coupon, or call option itself and someone else can decide when to exercise it.
The biggest advantage to a call option is that if the asset's value decreases over time, then you can decide not to exercise the coupon and instead of losing the value that the asset has lost, you will only lose the amount that you paid for the premium. On the other hand, if the value of the asset goes up then selling it means...