chapter 10 part 2

Question 1

what is a option?

Answer 1

it is a contract between to parties the buyer (long position) and the seller (short position).

Question 2

what are the 2 types of options?

Answer 2

Call option - The buyer has the option to buy at time. the seller is obligated to abide.
put option - the seller has the option to sell at time. the buyer is obligated to abide

Question 3

What is the strike price?

Answer 3

The price agreed up that the asset can be bought or sold in the future.

Question 4

what is an American style option?

Answer 4

its a option that can be exercised any time up to the expiration date

Question 5

what is a euro style option?

Answer 5

an option that can only be exercised on its expiration date

Question 6

Whats a LEAP? long term anticipation security

Answer 6

same as risks and as regular options just longer term

Question 7

what is “opening transaction” and “opening sell transaction” ?

Answer 7

starting a call option and put option

Question 8

what are 3 possible outcomes after starting an options contract?

Answer 8

1. Offsetting - buying or selling same amount shares in asset. which cancels contract
2. exercising option
3. letting contract expire

Question 9

what is in-the-money, at-the-money, out-of-the-money?

Answer 9

profitable, about to profitable, not profitable

Question 10

what is time value?

Answer 10

it is a measure of uncertainty of an option based on time

Question 11

where are options listed?

Answer 11

The Montreal exchange and the ice futures exchange

Question 12

what is a covered call?

Answer 12

its when a covered call writer sells call options believe the stock is not going to rise in price, they already own shares in the company. if the price goes up they are obligated to sell to the buyer but can still make money because of the premium and they bought the shares for less

Question 13

what is a cash covered put writing?

Answer 13

put option writer keeps enough cash to cover strike price incase it get exercised. also known as a nearly covered put writing

Question 14

what are the two types of futures?

Answer 14

1. financial futures
   stocks, bonds, currencies, interest rates, stock indices
2. commodity futures
   gold, crude oil, grains and oilseeds, dairy, livestock, forestry

Question 15

what is the difference between a futures contract and a futures agreement?

Answer 15

1. futures contract is on an exchange

2. futures agreement is on the OTC markets

Question 16

who is the short position and the long position in a futures contract?

Answer 16

The buyer is the long position the seller is the short position