Ch 3 Flashcards
Derivatives
Financial contracts whose cash flows and value derive from some underlying financial asset or commodity or indicator
Underlying asset
All derivatives are link to an underlying asset
Forward
A contract where the long (buyer) agrees to buy an underlying asset from the short (seller) at a future date for a predetermined price know as the forward price.
Call option
The long has the right but not the oligation to buy an underlying asset from the short at a future date for a predetermined price called the strike price
Put option
Allow the long the right to sell the underlying asset at a predetermined price.
Future
Exchange-trade versions of forwards
When is a put in money?
When the Strike price is higher than the price of the stk
When is a put out of the money?
When the strike price is lower than the price of the stk
When is a put at the money?
When the strike price is the same as the stk price
When is a call in money?
When the strike price is lower than the price of the stk
When is a call out of the money?
When the Strike price is higher than the price of the stk
When is a put at the money?
When the strike price is the same as the stk price
