Instructions - Page 1 of 3
The experiment consists of
You are an investor in the stock market who has bought an
American call option
and your task in each round is to decide whether you wish to
the option and, if so, at what time.
Exercising an American Call Option
is a contract between you, the buyer, and the seller of a particular stock, such that the seller is obliged to sell the stock to you at a certain future time (the
) for a certain price (the
), should you decide to exercise the option, which is your decision to make. If the price of the stock rises and is above the strike price on the expiration date, you can make a profit by
the option and selling the stock on, otherwise the option is worthless and you may allow it to
call option, you are in addition allowed to exercise the option
at any time
during its lifetime; you don't have to wait until the expiration date.
Selling a Call Option
You can also make a profit by
a call option on the open market during its lifetime. You receive a
fair market price
for the option which takes into account the current price of the stock. You are
told what this price is until after you sell but you are invited to
what it should be; the number you enter as a guess does
affect the price you receive, which is always the fair market price.