Question

Taylor and Michael are agents working for Juarez Real Estate Brokers last September 2018 when one of Jessica’s clients became interested in Michael’s listing. The two write up an option agreement and purchase contract per the terms of their respective clients with the option expiring December 31st, 2020. Due to a wildfire, real estate prices have risen substantially. Describe this arrangement for Juarez’s agency? What is likely to be Taylor’s client’s action?

Answer 1

Dear student,

first i would like to explain about the options there two type of options in derivative market:

1) Call option: which gives a right to buy but not an obligation on a specific price to call option buyer the opposite is for call option writer.

2) put option: which will gave you a right to sell but not an obligation on a specific price to put option buyer the opposite is for put option writer.

Now there is 2 party one is option writer and another one is option buyer or option taker.

I’m just giving a briefing about options through above para.

Now if we talk about the jaurez’s agency they should protect from price rise by writing call option so the future situation of price rise will not impact drastically to the agency.

on the other hand if we talk about the taylor’s client he or she should buy a call option so client have a right to buy stock in future on a certain price. above from that price will be reimbursed by Call writer.

I know this concepts are little bit difficult but still i try my level best please gave me a positive rating.

if you still have any doubt you can reach me i really happy to serve you.

thanks