INTRODUCTION TO OPTIONS MARKETS QUESTIONS
|
|
- Percival Smith
- 7 years ago
- Views:
Transcription
1 INTRODUCTION TO OPTIONS MARKETS QUESTIONS 1. What is the difference between a put option and a call option? 2. What is the difference between an American option and a European option? 3. Why does an option writer need to post margin? 4. Identify two important ways in which an exchange-traded option differs from a typical overthe-counter option. 5. "There's no real difference between options and futures. Both are hedging tools, and both are derivative products. It's just that with options you have to pay an option premium, while futures require no upfront payment except for a 'good faith margin. I can t understand why anyone would use options." Do you agree with this statement? 6. Explain how this statement can be true: "A long call position offers potentially unlimited gains if the underlying asset s price rises, but a fixed, maximum loss if the underlying asset s price drops to zero." 7. Suppose a call option on a stock has a strike price of $70 and a cost of $2, and suppose you buy the call. Identify the profit to your investment, at the call's expiration, for each of these values of the underlying stock: $25, $70, $100, $ Consider the situation in the previous question once more. Suppose you had sold the call option. What would your profit be at expiration for each of those stock prices? 9. Explain why you agree or disagree with this statement: "Buying a put is just like short selling the underlying asset. You gain the same thing from either position if the underlying asset s price falls. If the price goes up, you have the same loss." 10. You just opened the morning newspaper to check the prices of call options on Asset ABC. It is now December, with the near contract maturing in 1 months time. Asset ABC is currently trading at $50. Strike Jan. March June $40 $11 $12 $ Glancing at the figures, you note that two of these quotes seem to violate some of the rules you learned regarding option pricing. a. What are these discrepancies? b. How could you take advantage of the discrepancies? What is the minimum profit you 1
2 would realize by arbitraging based on these discrepancies? c. Suppose the price of the January $40 call were $9 rather than $11. The option would thus be selling for less than its intrinsic value. Why might it not be the case that an arbitrage profit is instantly available? 12. Indicate whether you agree or disagree with the following statements. a. To determine the theoretical value of an option, we need some measure of the volatility of the underlying asset. Because financial theorists tell us that the appropriate measure of risk is beta (i.e., systematic risk), then we should use this value." b. "It does not make sense that the price of a call option should rise in value if the price of the underlying asset falls." 13. For an asset that does not make cash distributions over the life of an option, it does not pay to exercise a call option prior to the expiration date. Why? INTRODUCTION TO OPTIONS MARKETS ANSWERS TO QUESTIONS 1. A put option is the right to sell a security at a specified price within a specified period of time ("put it to the other party"). A call option is the right to buy a security at a specified price within a specified period of time. 2. An American option can be exercised at any time up until the date of expiration. A European option can only be exercised at time of expiration. 3. An option writer (seller) has agreed to take on all of the risk that the buyer may exercise his option when the price of the underlying asset changes in a direction favorable to the buyer. By definition, one direction of price movement will be unfavorable to the seller. Posting margin protects the clearinghouse and helps guarantee that the seller performs as required. 4. Exchange-traded options are standardized in terms of exercise prices, the size of contracts, and expiration dates. Such standardization is necessary to ensure enough that there are high levels of participation in each contract. It helps the clearinghouse provide liquidity to the market. In addition, standard contracts reduce the transactions costs to participants. 5. The quote fails to recognize that options and futures have fundamental differences. Futures are obligations, whereas buying options gives one the right to perform, but not the obligation. Consequently, they have very different hedging outcomes: futures can be used to lock in a price without the hedger being able to take advantage of a favorable price movement, but an option establishes (based on the strike price) a price for the asset to be hedged but allows the hedger to benefit from a favorable price movement. The more favorable outcome in the case of an option is not free. The cost is the option price or option premium. There is no premium paid in the futures 2
3 market; each side of the transaction is required to perform instead. Futures and exchange traded options may have different underlying assets, which may influence the selection of one or the other for risk management and hedging purposes. 6. As long as the price of the underlying asset increases, the profits increase monotonically. His maximum loss is the price of the option, or the option premium. 7. At an underlying price of $25 the option will not be exercised, and the buyer will lose $2. At $70 there is still no profit in exercising; the loss will still be $2. At $100, the option will be exercised, and the profit will be $100 $70 $2 = $28. At $400, the option will be exercised (enthusiastically), and the profit will be $400 $70 $2 = $ Assuming no transaction cost, an option transaction is a zero sum transaction, meaning that one party s loss is the other s gain. Therefore, the writer s profit or loss would be the mirror opposite of the holder s. In this case, the profit and loss for each situation would be: $2, $2, and $ Disagree. For both a short sale and a long put, an investor profits if the price of the underlying stock falls. But a short sale exposes one to potentially infinite losses as the price of the stock may potentially increase infinitely. In other words, there is no cap to potential losses. A long position in a put option exposes one to losses up to the amount of the option premium. 10. a. The two discrepancies are: (i) the June 40 call is selling for less than the March 40 call despite the fact that the former has a longer time to expiration, and (ii) the June 50 call is trading at a price that is less than the June 60 call, despite the fact that the former has a lower strike price. b. To see how to exploit the second of the two discrepancies, suppose that you buy the June 50 call and sell the June 60 call. The net premium received is $0.50 ($9.00 minus $8.50). Consider what happens under the following scenarios for the price of Asset ABC at the expiration date: if the price is $50 or less, then both calls expire worthless and you get to keep the $0.50 difference in the premiums if the price is above $50 but less than or equal to $60, then the option sold expires worthless and the option purchased will have an intrinsic value equal to the price of Asset ABC at expiration plus $0.50 (the net premium received). Thus, the maximum profit is $10.50 when the price of asset ABC at expiration is $60. if the price is above $60, then the maximum price that can be received for Asset ABC is $60 since the asset will be called at that price by the buyer of the June 60 call. Thus, the profit under this scenario is $
4 To summarize: the profit from exploiting the second premium discrepancy will be between $0.50 and $ As for the first discrepancy, the strategy to exploit it would be to buy the June 40 call at $11.50 and sell the March 40 call at $12. As a result, there would be a net premium received of $0.50. Consider the following scenario for the price of Asset ABC at the expiration of the March contract: if the option is out-of-the-money (if the price of ABC is less than $40), the March call expires worthless but the June 40 call will have some intrinsic value. The gain would be $0.50 plus the market price of the June 40 call. if the option expires in-the-money (if the price of ABC is greater than $40), the intrinsic value of the March 40 call will be equal to the intrinsic value of the June 40 but the latter will have time value. So, as in the previous scenario, the gain is $0.50 plus the time value. c. This would be because of non-synchronous information the closing prices of the stock and options markets are usually taken at different times in the trading day. This is important to emphasize to students. We often find students who have scanned a daily periodical and reported what they believed to be mispricing. Traders use real time quotes to try to uncover mispriced options. 11. a. The payoff is shown below: Spot price + Long Call + Short put = Payoff This payoff structure is equivalent to the forward contract payoffs listed in the text of the question. b. This is because a forward contract requires no initial investment. Thus to replicate the payoff of a forward contract you would find call and put options at the same strike price and the same option price in order to satisfy the condition that no initial investment be made. Buying a call and selling a put at the same option prices would require no investment. 12. a. Disagree. The problem with using the capital asset pricing model and the discounted cash flow method of valuation is that the risks associated with an option changes continuously. Thus, option valuation instead uses the continuous hedging by holding the underlying assets and borrowing funds as a synthetic substitute for the cash flow of an option. b. Disagree. All other factors unchanged, the price of a call option will decline if the asset's 4
5 price declines. However, if another factor that affects the option price changes such that it offsets the adverse affect of a decline in the asset's price, the price of a call can rise. For example, if expected volatility rises, the call option premium can rise. 13. If an option is exercised prior to the expiration date, the intrinsic value will be realized. If, instead, a call option is sold prior to the expiration date, the option premium or value will be realized. The option price includes the intrinsic value and time premium. Thus, early exercise results in the loss of the time premium. Warn students that this is because we assumed that there is no cash distribution that will be realized from holding the asset. If there are cash distributions, then one must evaluate whether the value of the cash distributions (plus any income that can be realized from reinvesting those distributions until the expiration date) exceeds the lost time premium. 5
Derivative Users Traders of derivatives can be categorized as hedgers, speculators, or arbitrageurs.
OPTIONS THEORY Introduction The Financial Manager must be knowledgeable about derivatives in order to manage the price risk inherent in financial transactions. Price risk refers to the possibility of loss
More informationChapter 20 Understanding Options
Chapter 20 Understanding Options Multiple Choice Questions 1. Firms regularly use the following to reduce risk: (I) Currency options (II) Interest-rate options (III) Commodity options D) I, II, and III
More informationIntroduction to Options
Introduction to Options By: Peter Findley and Sreesha Vaman Investment Analysis Group What Is An Option? One contract is the right to buy or sell 100 shares The price of the option depends on the price
More information11 Option. Payoffs and Option Strategies. Answers to Questions and Problems
11 Option Payoffs and Option Strategies Answers to Questions and Problems 1. Consider a call option with an exercise price of $80 and a cost of $5. Graph the profits and losses at expiration for various
More informationOPTION TRADING STRATEGIES IN INDIAN STOCK MARKET
OPTION TRADING STRATEGIES IN INDIAN STOCK MARKET Dr. Rashmi Rathi Assistant Professor Onkarmal Somani College of Commerce, Jodhpur ABSTRACT Options are important derivative securities trading all over
More informationOnline Appendix: Payoff Diagrams for Futures and Options
Online Appendix: Diagrams for Futures and Options As we have seen, derivatives provide a set of future payoffs based on the price of the underlying asset. We discussed how derivatives can be mixed and
More informationChapter 15 OPTIONS ON MONEY MARKET FUTURES
Page 218 The information in this chapter was last updated in 1993. Since the money market evolves very rapidly, recent developments may have superseded some of the content of this chapter. Chapter 15 OPTIONS
More informationOPTIONS MARKETS AND VALUATIONS (CHAPTERS 16 & 17)
OPTIONS MARKETS AND VALUATIONS (CHAPTERS 16 & 17) WHAT ARE OPTIONS? Derivative securities whose values are derived from the values of the underlying securities. Stock options quotations from WSJ. A call
More information6. Foreign Currency Options
6. Foreign Currency Options So far, we have studied contracts whose payoffs are contingent on the spot rate (foreign currency forward and foreign currency futures). he payoffs from these instruments are
More informationAnswers to Concepts in Review
Answers to Concepts in Review 1. Puts and calls are negotiable options issued in bearer form that allow the holder to sell (put) or buy (call) a stipulated amount of a specific security/financial asset,
More informationOption Theory Basics
Option Basics What is an Option? Option Theory Basics An option is a traded security that is a derivative product. By derivative product we mean that it is a product whose value is based upon, or derived
More informationThere are two types of options - calls and puts.
Options on Single Stock Futures Overview Options on single Stock Futures An SSF option is, very simply, an instrument that conveys to its holder the right, but not the obligation, to buy or sell an SSF
More informationCommodity Options as Price Insurance for Cattlemen
Managing for Today s Cattle Market and Beyond Commodity Options as Price Insurance for Cattlemen By John C. McKissick, The University of Georgia Most cattlemen are familiar with insurance, insuring their
More informationDerivatives: Options
Derivatives: Options Call Option: The right, but not the obligation, to buy an asset at a specified exercise (or, strike) price on or before a specified date. Put Option: The right, but not the obligation,
More informationFinance 436 Futures and Options Review Notes for Final Exam. Chapter 9
Finance 436 Futures and Options Review Notes for Final Exam Chapter 9 1. Options: call options vs. put options, American options vs. European options 2. Characteristics: option premium, option type, underlying
More informationOctober 2003 UNDERSTANDING STOCK OPTIONS
October 2003 UNDERSTANDING STOCK OPTIONS Table of Contents Introduction 3 Benefits of Exchange-Traded Options 5 Orderly, Efficient, and Liquid Markets Flexibility Leverage Limited Risk for Buyer Guaranteed
More informationCopyright 2009 by National Stock Exchange of India Ltd. (NSE) Exchange Plaza, Bandra Kurla Complex, Bandra (East), Mumbai 400 051 INDIA
Copyright 2009 by National Stock Exchange of India Ltd. (NSE) Exchange Plaza, Bandra Kurla Complex, Bandra (East), Mumbai 400 051 INDIA All content included in this book, such as text, graphics, logos,
More informationFutures Price d,f $ 0.65 = (1.05) (1.04)
24 e. Currency Futures In a currency futures contract, you enter into a contract to buy a foreign currency at a price fixed today. To see how spot and futures currency prices are related, note that holding
More informationAn Option In the security market, an option gives the holder the right to buy or sell a stock (or index of stocks) at a specified price ( strike
Reading: Chapter 17 An Option In the security market, an option gives the holder the right to buy or sell a stock (or index of stocks) at a specified price ( strike price) within a specified time period.
More informationUnderlying (S) The asset, which the option buyer has the right to buy or sell. Notation: S or S t = S(t)
INTRODUCTION TO OPTIONS Readings: Hull, Chapters 8, 9, and 10 Part I. Options Basics Options Lexicon Options Payoffs (Payoff diagrams) Calls and Puts as two halves of a forward contract: the Put-Call-Forward
More informationFor example, someone paid $3.67 per share (or $367 plus fees total) for the right to buy 100 shares of IBM for $180 on or before November 18, 2011
Chapter 7 - Put and Call Options written for Economics 104 Financial Economics by Prof Gary R. Evans First edition 1995, this edition September 24, 2011 Gary R. Evans This is an effort to explain puts
More information2. How is a fund manager motivated to behave with this type of renumeration package?
MØA 155 PROBLEM SET: Options Exercise 1. Arbitrage [2] In the discussions of some of the models in this course, we relied on the following type of argument: If two investment strategies have the same payoff
More informationCHAPTER 20. Financial Options. Chapter Synopsis
CHAPTER 20 Financial Options Chapter Synopsis 20.1 Option Basics A financial option gives its owner the right, but not the obligation, to buy or sell a financial asset at a fixed price on or until a specified
More informationUnderstanding Stock Options
Understanding Stock Options Introduction...2 Benefits Of Exchange-Traded Options... 4 Options Compared To Common Stocks... 6 What Is An Option... 7 Basic Strategies... 12 Conclusion...20 Glossary...22
More informationCHAPTER 22: FUTURES MARKETS
CHAPTER 22: FUTURES MARKETS PROBLEM SETS 1. There is little hedging or speculative demand for cement futures, since cement prices are fairly stable and predictable. The trading activity necessary to support
More informationcall option put option strike price/exercise price expiration date/maturity
OPTIONS Objective This chapter introduces the readers to the concept of options which include calls and puts. All basic concepts like option buyer and seller, European and American options, and payoff
More informationGuide to Options Strategies
RECOGNIA S Guide to Options Strategies A breakdown of key options strategies to help you better understand the characteristics and implications of each Recognia s Guide to Options Strategies 1 3 Buying
More informationPOLICY STATEMENT Q-22
POLICY STATEMENT Q-22 DISCLOSURE DOCUMENT FOR COMMODITY FUTURES CONTRACTS, FOR OPTIONS TRADED ON A RECOGNIZED MARKET AND FOR EXCHANGE-TRADED COMMODITY FUTURES OPTIONS 1. In the case of commodity futures
More informationHow to Collect a 162% Cash on Cash Return
How to Collect a 162% Cash on Cash Return Today we are going to explore one of the most profitable, low-risk income strategies I ve come across in my 27 years of trading. This income strategy produced
More informationBefore we discuss a Call Option in detail we give some Option Terminology:
Call and Put Options As you possibly have learned, the holder of a forward contract is obliged to trade at maturity. Unless the position is closed before maturity the holder must take possession of the
More informationOptions CHAPTER 7 INTRODUCTION OPTION CLASSIFICATION
CHAPTER 7 Options INTRODUCTION An option is a contract between two parties that determines the time and price at which a stock may be bought or sold. The two parties to the contract are the buyer and the
More informationStrategies in Options Trading By: Sarah Karfunkel
Strategies in Options Trading By: Sarah Karfunkel Covered Call Writing: I nvestors use two strategies involving stock options to offset risk: (1) covered call writing and (2) protective puts. The strategy
More informationBUSM 411: Derivatives and Fixed Income
BUSM 411: Derivatives and Fixed Income 2. Forwards, Options, and Hedging This lecture covers the basic derivatives contracts: forwards (and futures), and call and put options. These basic contracts are
More informationFundamentals of Futures and Options (a summary)
Fundamentals of Futures and Options (a summary) Roger G. Clarke, Harindra de Silva, CFA, and Steven Thorley, CFA Published 2013 by the Research Foundation of CFA Institute Summary prepared by Roger G.
More informationUNDERSTANDING EQUITY OPTIONS
UNDERSTANDING EQUITY OPTIONS The Options Industry Council (OIC) is a non-profit association created to educate the investing public and brokers about the benefits and risks of exchange-traded options.
More informationLOCKING IN TREASURY RATES WITH TREASURY LOCKS
LOCKING IN TREASURY RATES WITH TREASURY LOCKS Interest-rate sensitive financial decisions often involve a waiting period before they can be implemen-ted. This delay exposes institutions to the risk that
More informationTwo-State Options. John Norstad. j-norstad@northwestern.edu http://www.norstad.org. January 12, 1999 Updated: November 3, 2011.
Two-State Options John Norstad j-norstad@northwestern.edu http://www.norstad.org January 12, 1999 Updated: November 3, 2011 Abstract How options are priced when the underlying asset has only two possible
More informationCHAPTER 11 INTRODUCTION TO SECURITY VALUATION TRUE/FALSE QUESTIONS
1 CHAPTER 11 INTRODUCTION TO SECURITY VALUATION TRUE/FALSE QUESTIONS (f) 1 The three step valuation process consists of 1) analysis of alternative economies and markets, 2) analysis of alternative industries
More informationFIN-40008 FINANCIAL INSTRUMENTS SPRING 2008
FIN-40008 FINANCIAL INSTRUMENTS SPRING 2008 Options These notes consider the way put and call options and the underlying can be combined to create hedges, spreads and combinations. We will consider the
More informationBuying Call or Long Call. Unlimited Profit Potential
Options Basis 1 An Investor can use options to achieve a number of different things depending on the strategy the investor employs. Novice option traders will be allowed to buy calls and puts, to anticipate
More informationRisks involved with futures trading
Appendix 1: Risks involved with futures trading Before executing any futures transaction, the client should obtain information on the risks involved. Note in particular the risks summarized in the following
More informationDERIVATIVES Presented by Sade Odunaiya Partner, Risk Management Alliance Consulting DERIVATIVES Introduction Forward Rate Agreements FRA Swaps Futures Options Summary INTRODUCTION Financial Market Participants
More informationCHAPTER 22 Options and Corporate Finance
CHAPTER 22 Options and Corporate Finance Multiple Choice Questions: I. DEFINITIONS OPTIONS a 1. A financial contract that gives its owner the right, but not the obligation, to buy or sell a specified asset
More informationJ. Gaspar: Adapted from Jeff Madura, International Financial Management
Chapter5 Currency Derivatives J. Gaspar: Adapted from Jeff Madura, International Financial Management 5. 1 Currency Derivatives Currency derivatives are financial instruments whose prices are determined
More informationUnderstanding Options Trading. ASX. The Australian Sharemarket
Understanding Options Trading ASX. The Australian Sharemarket Disclaimer of Liability Information provided is for educational purposes and does not constitute financial product advice. You should obtain
More informationLEAPS LONG-TERM EQUITY ANTICIPATION SECURITIES
LEAPS LONG-TERM EQUITY ANTICIPATION SECURITIES The Options Industry Council (OIC) is a non-profit association created to educate the investing public and brokers about the benefits and risks of exchange-traded
More informationunderstanding options
Investment Planning understanding options Get acquainted with this versatile investment tool. Understanding Options This brochure discusses the basic concepts of options: what they are, common investment
More informationSwing Trade Warrior Chapter 1. Introduction to swing trading and how to understand and use options How does Swing Trading Work? The idea behind swing trading is to capitalize on short term moves of stocks
More informationThe basic concepts of grain price options are
Grain Price Options Basics File A2-66 December 2009 www.extension.iastate.edu/agdm The basic concepts of grain price options are discussed below. Methods of using grain price options to market grain are
More informationUse the option quote information shown below to answer the following questions. The underlying stock is currently selling for $83.
Problems on the Basics of Options used in Finance 2. Understanding Option Quotes Use the option quote information shown below to answer the following questions. The underlying stock is currently selling
More informationTHE EQUITY OPTIONS STRATEGY GUIDE
THE EQUITY OPTIONS STRATEGY GUIDE APRIL 2003 Table of Contents Introduction 2 Option Terms and Concepts 4 What is an Option? 4 Long 4 Short 4 Open 4 Close 5 Leverage and Risk 5 In-the-money, At-the-money,
More informationInterest Rate Options
Interest Rate Options A discussion of how investors can help control interest rate exposure and make the most of the interest rate market. The Chicago Board Options Exchange (CBOE) is the world s largest
More informationTHE POWER OF FOREX OPTIONS
THE POWER OF FOREX OPTIONS TOPICS COVERED Option basics Call options Put Options Why trade options? Covered call Covered put Hedging your position using options How to repair a trading position THE POWER
More informationRisk Explanation for Exchange-Traded Derivatives
Risk Explanation for Exchange-Traded Derivatives The below risk explanation is provided pursuant to Hong Kong regulatory requirements relating to trading in exchange-traded derivatives by those of our
More informationCHAPTER 22: FUTURES MARKETS
CHAPTER 22: FUTURES MARKETS 1. a. The closing price for the spot index was 1329.78. The dollar value of stocks is thus $250 1329.78 = $332,445. The closing futures price for the March contract was 1364.00,
More informationSOCIETY OF ACTUARIES FINANCIAL MATHEMATICS. EXAM FM SAMPLE QUESTIONS Financial Economics
SOCIETY OF ACTUARIES EXAM FM FINANCIAL MATHEMATICS EXAM FM SAMPLE QUESTIONS Financial Economics June 2014 changes Questions 1-30 are from the prior version of this document. They have been edited to conform
More informationChapter 2 An Introduction to Forwards and Options
Chapter 2 An Introduction to Forwards and Options Question 2.1. The payoff diagram of the stock is just a graph of the stock price as a function of the stock price: In order to obtain the profit diagram
More informationUnderstanding Options Trading. ASX. The Australian Sharemarket
Understanding Options Trading ASX. The Australian Sharemarket Disclaimer of Liability Information provided is for educational purposes and does not constitute financial product advice. You should obtain
More informationwww.optionseducation.org OIC Options on ETFs
www.optionseducation.org Options on ETFs 1 The Options Industry Council For the sake of simplicity, the examples that follow do not take into consideration commissions and other transaction fees, tax considerations,
More informationContents. 2 What are Options? 3 Ways to use Options. 7 Getting started. 8 Frequently asked questions. 13 Contact us. 14 Important Information
Options For individuals, companies, trusts and SMSFs The Options and Lending Facility Contents 2 What are Options? 3 Ways to use Options 7 Getting started 8 Frequently asked questions 13 Contact us 14
More informationFIN-40008 FINANCIAL INSTRUMENTS SPRING 2008. Options
FIN-40008 FINANCIAL INSTRUMENTS SPRING 2008 Options These notes describe the payoffs to European and American put and call options the so-called plain vanilla options. We consider the payoffs to these
More informationForsa Equity Options Traded on the Kuwait Stock Exchange
Forsa Equity Options Traded on the Kuwait Stock Exchange Options are not suitable for everyone. In light of the risks associated with trading options, you should use them only if you are confident that
More informationSection 1. Introduction to Option Trading
Section 1. Introduction to Option Trading Trading stock options is a much different game from trading the underlying stocks. When options are traded for appreciation, it is a game of leverage, with big
More informationFinance 350: Problem Set 6 Alternative Solutions
Finance 350: Problem Set 6 Alternative Solutions Note: Where appropriate, the final answer for each problem is given in bold italics for those not interested in the discussion of the solution. I. Formulas
More informationSwiss Risk Disclosure - Characteristics and Risks of Options
This is a sample form and will not submit any information. Swiss Risk Disclosure for Options Print Swiss Risk Disclosure - Characteristics and Risks of Options 1. Characteristics 1.1 Definitions 1.1.1
More informationCall and Put. Options. American and European Options. Option Terminology. Payoffs of European Options. Different Types of Options
Call and Put Options A call option gives its holder the right to purchase an asset for a specified price, called the strike price, on or before some specified expiration date. A put option gives its holder
More informationChapter 21: Options and Corporate Finance
Chapter 21: Options and Corporate Finance 21.1 a. An option is a contract which gives its owner the right to buy or sell an underlying asset at a fixed price on or before a given date. b. Exercise is the
More informationOptions Strategies. 26 proven options strategies
asx 267_cover 25/8/9 1:32 PM Page 2 Options Strategies 26 proven options strategies Information line: 131 279 www.asx.com.au HOW TO USE THIS BOOKLET This brochure details more than two dozen strategies
More informationInvestment Finance 421-002 Prototype Midterm I
Investment Finance 421-002 Prototype Midterm I The correct answer is highlighted by a *. Also, a concise reasoning is provided in Italics. 1. are an indirect way U. S. investor can invest in foreign companies.
More informationCHAPTER 8 SUGGESTED ANSWERS TO CHAPTER 8 QUESTIONS
INSTRUCTOR S MANUAL: MULTINATIONAL FINANCIAL MANAGEMENT, 9 TH ED. CHAPTER 8 SUGGESTED ANSWERS TO CHAPTER 8 QUESTIONS. On April, the spot price of the British pound was $.86 and the price of the June futures
More information2 Stock Price. Figure S1.1 Profit from long position in Problem 1.13
Problem 1.11. A cattle farmer expects to have 12, pounds of live cattle to sell in three months. The livecattle futures contract on the Chicago Mercantile Exchange is for the delivery of 4, pounds of cattle.
More informationCommodity Futures and Options
Understanding Commodity Futures and Options for Producers of Livestock and Livestock Products CIS 1100 The Authors Larry D. Makus, C. Wilson Gray and Neil R. Rimbey* Introduction Risk associated with an
More informationMARGIN FOREIGN EXCHANGE AND FOREIGN EXCHANGE OPTIONS
CLIENT SERVICE AGREEMENT Halifax New Zealand Limited Client Service Agreement Product Disclosure Statement for MARGIN FOREIGN EXCHANGE AND FOREIGN EXCHANGE OPTIONS Halifax New Zealand Limited Financial
More informationChapter 15 - Options Markets
Chapter 15 - Options Markets Option contract Option trading Values of options at expiration Options vs. stock investments Option strategies Option-like securities Option contract Options are rights to
More information9 Basics of options, including trading strategies
ECG590I Asset Pricing. Lecture 9: Basics of options, including trading strategies 1 9 Basics of options, including trading strategies Option: The option of buying (call) or selling (put) an asset. European
More informationMath 489/889. Stochastic Processes and. Advanced Mathematical Finance. Homework 1
Math 489/889 Stochastic Processes and Advanced Mathematical Finance Homework 1 Steve Dunbar Due Friday, September 3, 2010 Problem 1 part a Find and write the definition of a ``future'', also called a futures
More informationBuying Equity Call Options
Buying Equity Call Options Presented by The Options Industry Council 1-888-OPTIONS Equity Call Options Options involve risks and are not suitable for everyone. Prior to buying or selling options, an investor
More informationReference Manual Currency Options
Reference Manual Currency Options TMX Group Equities Toronto Stock Exchange TSX Venture Exchange TMX Select Equicom Derivatives Montréal Exchange CDCC Montréal Climate Exchange Fixed Income Shorcan Energy
More informationHedging with Futures and Options: Supplementary Material. Global Financial Management
Hedging with Futures and Options: Supplementary Material Global Financial Management Fuqua School of Business Duke University 1 Hedging Stock Market Risk: S&P500 Futures Contract A futures contract on
More informationBasic Strategies for Managing U.S. Dollar/Brazilian Real Exchange Rate Risk for Dollar-Denominated Investors. By Ira G. Kawaller Updated May 2003
Basic Strategies for Managing U.S. Dollar/Brazilian Real Exchange Rate Risk for Dollar-Denominated Investors By Ira G. Kawaller Updated May 2003 Brazilian Real futures and options on futures at Chicago
More informationGoals. Options. Derivatives: Definition. Goals. Definitions Options. Spring 2007 Lecture Notes 4.6.1 Readings:Mayo 28.
Goals Options Spring 27 Lecture Notes 4.6.1 Readings:Mayo 28 Definitions Options Call option Put option Option strategies Derivatives: Definition Derivative: Any security whose payoff depends on any other
More informationHedging of Currency Option in Trading Market
International Journal of Economic and Management Strategy. ISSN 2278-3636 Volume 3, Number 1 (2013), pp. 1-6 Research India Publications http://www.ripublication.com/jems.htm Hedging of Currency Option
More informationEXCHANGE TRADED OPTIONS
EXCHANGE TRADED OPTIONS A SELF STUDY GUIDE TO TRADING EQUITY OPTIONS NZX EDUCATION This document is provided for general information purposes and is not intended as, and shall not constitute, investment
More informationIntroduction to Futures Contracts
Introduction to Futures Contracts September 2010 PREPARED BY Eric Przybylinski Research Analyst Gregory J. Leonberger, FSA Director of Research Abstract Futures contracts are widely utilized throughout
More informationRISK DISCLOSURE STATEMENT FOR SECURITY FUTURES CONTRACTS
RISK DISCLOSURE STATEMENT FOR SECURITY FUTURES CONTRACTS This disclosure statement discusses the characteristics and risks of standardized security futures contracts traded on regulated U.S. exchanges.
More informationAdvanced Strategies for Managing Volatility
Advanced Strategies for Managing Volatility Description: Investment portfolios are generally exposed to volatility through company-specific risk and through market risk. Long-term investors can reduce
More information} } Global Markets. Currency options. Currency options. Introduction. Options contracts. Types of options contracts
Global Markets Currency options Currency options Introduction Currency options have gained acceptance as invaluable tools in managing foreign exchange risk. They are extensively used and bring a much wider
More informationMilk Hedging Strategies Utilizing Futures & Options
Milk Hedging Strategies Utilizing Futures & Options A Basic Understanding of hedging and forward pricing scenarios Utilizing both futures & options traded at the Chicago Mercantile Exchange focusing on
More informationSLVO Silver Shares Covered Call ETN
Filed pursuant to Rule 433 Registration Statement No. 333-180300-03 April 15, 2014 SLVO Silver Shares Covered Call ETN Credit Suisse AG, Investor Solutions April 2014 Executive Summary Credit Suisse Silver
More informationOptions. Options Explained. Lorem ipsum dolor
Lorem ipsum dolor Sit amet, consetetur sadipscing elitr, sed diam nonumy eirmod tempor invidunt ut labore et dolore magna gubergren, no sea takimata sanctus est Lorem ipsum dolor sit amet. Options Options
More informationETF Options. Presented by The Options Industry Council 1-888-OPTIONS
ETF Options Presented by The Options Industry Council 1-888-OPTIONS ETF Options Options involve risks and are not suitable for everyone. Prior to buying or selling options, an investor must receive a copy
More informationPowerful tools for investing, speculating or hedging
Powerful tools for investing, speculating or hedging DERIVATIVE MARKET Equity Derivatives Single Stock Futures www.jse.co.za Johannesburg Stock Exchange Single Stock Futures are powerful tools for investing,
More informationReading: Chapter 19. 7. Swaps
Reading: Chapter 19 Chap. 19. Commodities and Financial Futures 1. The mechanics of investing in futures 2. Leverage 3. Hedging 4. The selection of commodity futures contracts 5. The pricing of futures
More informationHedging Using Forward Contracts
10 CHAPTER 1 Business Snapshot1.1 Hedge Funds Hedge funds have become major users of derivatives for hedging, speculation, and arbitrage. A hedge fund is similar to a mutual fund in that it invests funds
More informationCommodity Futures and Options
Understanding CIS 1089 Commodity Futures and Options Larry D. Makus and Paul E. Patterson for Grain Marketing The Authors: L.D. Makus Professor, Department of Agricultural Economics and Rural Sociology,
More informationFAQ. (Continued on page 2) An Investment Advisory Firm
FAQ An Investment Advisory Firm What is QASH Flow Advantage? It is a time-tested model that includes three strategic components: A portfolio of carefully selected Exchange-Traded Funds (ETFs) for diversification
More informationFX, Derivatives and DCM workshop I. Introduction to Options
Introduction to Options What is a Currency Option Contract? A financial agreement giving the buyer the right (but not the obligation) to buy/sell a specified amount of currency at a specified rate on a
More informationUNDERSTANDING INDEX OPTIONS
UNDERSTANDING INDEX OPTIONS The Options Industry Council (OIC) is an industry cooperative created to educate the investing public and brokers about the benefits and risks of exchange-traded options. Options
More informationCurrency Options. www.m-x.ca
Currency Options www.m-x.ca Table of Contents Introduction...3 How currencies are quoted in the spot market...4 How currency options work...6 Underlying currency...6 Trading unit...6 Option premiums...6
More informationGeneral Forex Glossary
General Forex Glossary A ADR American Depository Receipt Arbitrage The simultaneous buying and selling of a security at two different prices in two different markets, with the aim of creating profits without
More information