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CSC > Chapter - 10 > Flashcards

Chapter - 10 Flashcards

1
Q

An option that can be exercised at any time during the option’s lifetime

A

American-style option

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2
Q

The simultaneous purchase of a security on one stock exchange and the sale of the same security on another exchange at prices which yield a profit to the arbitrageur

A

arbitrage

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3
Q

Designated to fulfill the writer’s obligation on a call or put option for an option buyer who decides to exercise the option

A

assigned

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4
Q

An option with a strike price equal to (or almost equal to) the market price of the underlying security

A

at-the-money

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5
Q

The right to buy a specific number of shares at a specified price (the strike price) by a fixed date. The buyer pays a premium to the seller of the call option contract. An investor would buy a call option if the underlying stock’s price is expected to rise

A

call option

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6
Q

The ___ is a service organization that clears, issues, settles, and guarantees options, futures, and futures options traded on the Bourse de Montréal (the Bourse).

A

Canadian Derivatives Clearing Corporation (CDCC)

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7
Q

Involves writing a put option and setting aside an amount of cash equal to the strike price. If the cash-secured put writer is assigned, the cash is used to buy the stock from the exercising put buyer.

A

cash-secured put write

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8
Q

A product used for commerce that is traded on an organized exchange. It could be an agricultural product such as canola or wheat, or a natural resource such as oil or gold. It can be the basis for a futures contract.

A

commodities

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9
Q

Futures contracts based on an underlying commodity

A

commodity futures

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10
Q

A written call option where the writer owns the underlying stock, and uses this position to meet their obligations if assigned

A

covered call

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11
Q

With rights. Buyers of shares quoted cum rights, i.e., before the ex-rights date, are entitled to forthcoming already-declared rights. If shares are quoted ex rights (without rights) the buyer is not entitled to receive the declared rights.

A

cum rights

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12
Q

The risk that a debt security issuer will be unable to pay interest on the prescribed date or the principal at maturity. It applies to debt securities not equities since equity dividend payments are not contractual.

A

default risk

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13
Q

A type of financial instrument whose value is based on the performance of an underlying financial asset, commodity, or other investment. They are available on interest rates, currency, stock indexes. For example, a call option on IBM is a derivative because the value of the call varies in relation to the performance of IBM stock.

A

derivative

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14
Q

An option that can only be exercised on a specified date – normally the business day prior to expiration

A

European-style option

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15
Q

A term that denotes that the purchaser of a common share would not be entitled to a rights offering. Common shares go ___ two business days prior to the shareholder of record date.

A

ex-rights

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16
Q

The process of invoking the rights of the option or warrant contract. It is the holder of the option who exercises his or her rights.

A

exercise

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17
Q

The price at which a derivative can be exchanged for a share of the underlying security (also known as subscription price). For an option, it is the price at which the underlying security can be purchased, in the case of a call, or sold, in the case of a put, by the option holder. Synonymous with strike price.

A

exercise price

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18
Q

The date on which certain rights or option contracts cease to exist. For equity options, this date is usually the Saturday following the third Friday of the month listed in the contract. This term can also be used to describe the day on which warrants and rights cease to exist.

A

expiration date

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19
Q

A non-physical representational asset that derives a claim based on what it represents. For example, stocks, bonds and bank deposits are financial assets.

A

financial asset

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20
Q

Futures contracts with a financial asset as the underlying asset. Examples of underlying assets include currencies and stock indexes.

A

financial futures

21
Q

A ___ contract is similar to a futures contract but trades on an OTC basis. The seller agrees to deliver a specified commodity or financial instrument at a specified price sometime in the future. The terms of a forward contract are not standardized but are negotiated at the time of the trade. There may be no secondary market.

A

forward

22
Q

An over-the-counter forward

A

forward agreement

23
Q

A contract that signifies an agreement between a futures buyer and futures seller

A

futures contract

24
Q

A deposit of money by the buyer or seller of a futures product which acts as a financial guarantee as to the fulfilment of the contractual obligations of the futures contract. Also called a ___.

A

good faith deposit, performance bond or margin

25
Q

A protective manoeuvre; a transaction intended to reduce the risk of loss from price fluctuations

A

hedging

26
Q

A call option is in-the-money if its strike price is below the current market price of the underlying security. A put option is in-the-money if its strike price is above the current market price of the underlying security. The in-the-money amount is the option’s intrinsic value.

A

in-the-money

27
Q

That portion of a warrant or call option’s price that represents the amount by which the market price of a security exceeds the price at which the warrant or call option may be exercised (exercise price). Considered the theoretical value of a security (i.e., what a security should be worth or priced at in the market).

A

intrinsic value

28
Q

Long-term (2-3 year) option contracts. Also known as ___.

A

Long-Term Equity Anticipation Security, LEAPS

29
Q

The process in the futures market in which the daily price changes are paid by the parties incurring losses to the parties earning profits

A

marking to market

30
Q

A seller of a call option contract who does not own an offsetting position in the underlying security or a suitable alternative

A

naked call

31
Q

The price that an investor pays to purchase shares in a mutual fund. The offering price includes the charge or load that is levied when the purchase is made.

A

offering price

32
Q

A futures or option transaction that is the exact opposite of a previously established long or short position.

A

offsetting transaction

33
Q

An option transaction that is considered the initial or primary transaction. An opening transaction creates new rights for the buyer of an option, or new obligations for a seller.

A

opening transaction

34
Q

The total number of outstanding option contracts for a particular option series. An opening transaction would increase open interest, while a closing transaction would decrease open interest. It is used as one measure of an option class’s liquidity.

A

open interest

35
Q

A right to buy or sell specific securities or properties at a specified price within a specified time

A

option

36
Q

The amount paid to enter into an option contract, paid by the buyer to the seller or writer of the contract

A

option premium

37
Q

A call option is out-of-the-money if the market price of the underlying security is below its strike price. A put option is out-of-the-money if the market price of the underlying security is above the strike price.

A

out-of-the-money

38
Q

What is often required upon entry into a futures contract giving the parties to a contract a higher level of assurance that the terms of the contract will eventually be honoured. It is often referred to as ___.

A

performance bond, margin

39
Q

A right to sell the stock at a stated price within a given time period. Those who think a stock may go down generally purchase puts.

A

put option

40
Q

The date on which a shareholder must officially own shares in a company to be entitled to a declared dividend. Also referred to as the ___.

A

record date, date of record

41
Q

A short-term privilege granted to a company’s common shareholders to purchase additional common shares, usually at a discount, from the company itself, at a stated price and within a specified time period. Rights of listed companies trade on stock exchanges from the ex-rights date until their expiry.

A

rights

42
Q

The price, as specified in an option contract, at which the underlying security will be purchased in the case of a call or sold in the case of a put.

A

strike price

43
Q

The ___ or ___ price at which a right or warrant holder would pay for a new share from the company. With options the equivalent would be the strike price.

A

subscription price, exercise price

44
Q

A feature included in the terms of a new issue of debt or preferred shares to make the issue more attractive to initial investors. Examples include warrants and/or common shares sold with the issue as a unit or a convertible or extendible or retractable feature.

A

sweetener

45
Q

The amount, if any, by which the current market price of a right, warrant or option exceeds its intrinsic value

A

time value

46
Q

Describes the size or the amount of the underlying asset represented by one option contract. In North America, all exchange-traded options have a trading unit of 100 shares.

A

trading unit

47
Q

The security or asset upon which a derivative contract, such as an option, is based. For example, the ABC June 35 call options are based on the ___ ABC.

A

underlying asset or security

48
Q

A certificate giving the holder the right to purchase securities at a stipulated price within a specified time limit. They are usually issued with a new issue of securities as an inducement or sweetener to investors to buy the new issue.

A

warrants

CSC (12 decks)

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