Chapter 10 Derivatives KT Flashcards
A written call option where the writer owns the underlying stock and uses this position to meet their obligations if assigned.
covered call
A call option contract sold by an investor who does not own an offsetting position in the underlying security or a suitable alternative.
naked call
A contract that signifies an agreement between a futures buyer and futures seller.
futures contract
The price, also known as the exercise price, that is 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.
strike price
When the purchaser of a common share would not be entitled to a rights offering.
ex-rights
The amount, if any, by which the current market price of a right, warrant or option exceeds its intrinsic value.
time value
An option with a strike price equal to the market price of the underlying security.
at-the-money
The total number of outstanding option contracts for a particular option series.
open interest
The risk that a debt security issuer will be unable to pay interest on the prescribed date or the principal at maturity.
default risk
The process in the futures market in which the daily price changes are paid by the parties incurring losses to the parties earning profits.
marking to market
The kind of option that gives you the right to sell a stock at a stated price within a given time period.
put option
Writing a put option and setting aside an amount of cash equal to the strike price.
cash-secured put write
An option that can only be exercised on a specified date – normally the business day prior to expiration.
European-style option
How do you refer to a call option with a strike price below the current market price of the underlying security?
in-the-money
Also known as a performance bond or margin: a deposit of money by the buyer or seller as a financial guarantee for a futures contract.
good-faith deposit
