Below is part of the response you provided to a question I previously asked.  I was wondering if you could explain more thoroughly the explanation you provided about the cash flows at time of expiration.  I'm not totally understanding that portion of your response.  Thanks. Cash flows at t = 0 i.e. today = Cash flows from short selling 1 call option + cash flow from buying 1 stock = +C - S = C - S > 0 as C > S Cash flows at the time of expiration = 0. If option gets excercised, you offer the stock you hold to the buyer of the call option, thus there is no cash flow involved. If option is not excercised by the buyer, then there is no cash flows anyway.

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.