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Rob's s1452 Notes

πŸ™‹ Section/Student Qs for Lecture 5

Agenda for Tuesday Section, July 9 βœ…

  • Slide Review, concentrating on the most important and challenging slides from this week’s lecture.
  • Pages about this lecture on this website. Read 🧭 Getting Oriented for how to find them on the site.
  • Solutions for Problem Set 1, Question 7.
    • 9:19 pm
  • Solutions for Problem Set 2, Questions 3, 6, 8, 9, 12, and 16.
    • 9:23
  • Office Hours. Click here for notes and timestamps. Email office hour questions to robecon1452@gmail.com and I will cover them next section.

Click here to learn about timestamps and my process for answering questions.

πŸ“… Questions covered Tuesday, July 9

Liquidity and Options

πŸ•£ 9:55
❔ How does liquidity of the underlying relate to trading in the corresponding option?

βœ” If the underlying stock is highly illiquid, you might be willing to pay more for an option if you wanted to transact the stock and knew that you might have difficulty doing so. Therefore, illiquidity in the underlying might lead to greater demand for call or put options. With that said, that isn’t typically the reason for purchasing options.

Also, listing options is a business, and will not tend to be profitable if there isn’t much interest in the stock. Therefore, you are less likely tosee listed options for underlying stocks that aren’t so liquid.