An analysis of the characteristics of stock options a type of contracts

Award-fee provisions may be used in fixed-price contracts when the Government wishes to motivate a contractor and other incentives cannot be used because contractor performance cannot be measured objectively.

The seller may have a potential commitment to buy or sell the asset if the buyer exercises his right on the option.

Definition of an Options Contract

In the absence of effective price competition and if price analysis is not sufficient, the cost estimates of the offeror and the Government provide the bases for negotiating contract pricing arrangements.

What All Have in Common There is one important thing all these five characteristics of every option have in common: The contracting officer shall use firm-fixed-price or fixed-price with economic price adjustment contracts when acquiring commercial items, except as provided in No cost-plus-incentive-fee contract shall be awarded unless all limitations in Complex requirements, particularly those unique to the Government, usually result in greater risk assumption by the Government.

Because of the variations in circumstances and clause wording that may arise, no standard clause is prescribed. They can be bought and sold by anyone by using the services of a suitable broker.

You would buy a call if you believed that the underlying asset was likely to increase in price over a given period of time. The correct answer is "C". Long-Term Expiration Anticipation Securities: Physical settlement is where the underlying asset is actually transferred between the buyer and the holder at the agreed strike price.

Underlying Asset Options are a form of derivative; which basically means they derive their value from an underlying asset. The expiration date is the final date that the option holder has to exercise her right to buy or sell the underlying asset.

Under this form, if the performance is considered satisfactory by the Government, the fixed fee is payable at the expiration of the agreed-upon period, upon contractor statement that the level of effort specified in the contract has been expended in performing the contract work.

The call seller will deliver the securities at the exercise price and receive the cash value of those securities or receive equivalent cash settlement in lieu of delivering the securities. The reasons for these expiration cycles existing in the way they do is due to restrictions put in place when options were first introduced about when they could be traded.

A European style option is one where the holder can only exercise their option, should they wish to, at the point of expiration. If the seller holds the shares to be sold, the position is referred to as a covered call.

Options: Basic Characteristics

Again, the seller would receive the bid price and the buyer would pay the ask price. These incentives should be designed to relate profit or fee to results achieved by the contractor, compared with specified targets. Contract types vary according to -- 1 The degree and timing of the responsibility assumed by the contractor for the costs of performance; and 2 The amount and nature of the profit incentive offered to the contractor for achieving or exceeding specified standards or goals.

A fixed-price incentive contract is a fixed-price contract that provides for adjusting profit and establishing the final contract price by a formula based on the relationship of final negotiated total cost to total target cost. Options trading may occur in a variety of securities marketplaces and may involve a wide range of financial products, from stocks to foreign currencies.

This does not apply to prompt payment or cash discounts. For more information please read the following page — Barrier Options. However, payment is based on the effort expended rather than on the results achieved.

Each agency head shall provide mechanisms for sharing proven incentive strategies for the acquisition of different types of products and services among contracting and program management officials.

Options: Basic Characteristics

Economic price adjustments are of three general types: These price adjustments are based on increases or decreases from an agreed-upon level in published or otherwise established prices of specific items or the contract end items.

Now, suppose you believe the price of the stock will continue dropping up until the expiration date and you decide to wait to sell or exercise the option. In this sense, there are basically two main types; call options which give the holder the right to buy the underlying asset at the strike price, and put options which give the holder the right to sell the underlying asset at the strike price.

An American style option is one where the holder can exercise their option at any time during the term of the contract, up to and including the date of expiration. This contract type places upon the contractor maximum risk and full responsibility for all costs and resulting profit or loss.

This determination shall be documented in the contract file and, for award-fee contracts, shall address all of the suitability items in When the writer of the contract sells it to the buyer, they collect a payment from the buyer and that's commonly referred to as the premium.

They can basically be one of two styles: The use of rollover of unearned award fee is prohibited.(a) There are three types of indefinite-delivery contracts: definite-quantity contracts, requirements contracts, and indefinite-quantity contracts.

The appropriate type of indefinite-delivery contract may be used to acquire supplies and/or services when the exact times and/or exact quantities of future deliveries are not known at the time of. Characteristics & Risks of Standardized Options.

Prior to buying or selling an option, investors must read a copy of the Characteristics & Risks of Standardized Options, also known as the options disclosure document (ODD).

Investor Bulletin: An Introduction to Options

What is an 'Options Contract' An options contract is an agreement between two parties to facilitate a potential transaction on the underlying security at a preset price, referred to as the strike price, prior to the expiration date.

The two types of contracts are put and call options, which can be purchased to speculate on the direction of stocks or stock. Definition of an Options Contract. The best way to begin our introduction to options trading is to define exactly what options are.

Although commonly referred to simply as options, the full term is options contracts, because they are financial contracts between two parties. These exchange traded options cover stock options, commodity options, bond and interest rate options, index options, and futures options.

Another type of option contract is an over –the-counter option which is a trade between two private parties. Option Types: Calls & Puts. In the special language of options, contracts fall into two categories - Calls and Puts.

A Call represents the right of the holder to buy stock.

An analysis of the characteristics of stock options a type of contracts
Rated 5/5 based on 36 review