Question
When a trader writes a cash-settled call option, they agree to pay their counterparty Max(0, S T - K) at option maturity. Thus the trader
When a trader writes a cash-settled call option, they agree to pay their counterparty Max(0, ST - K) at option maturity. Thus the trader never expects to receive a payment and may have to make a payment. Thus, the best the trader can ever do is to pay nothing. Why would the trader ever agree to such an arrangement?
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Financial management theory and practice
Authors: Eugene F. Brigham and Michael C. Ehrhardt
12th Edition
978-0030243998, 30243998, 324422695, 978-0324422696
