Chapter 11 Crunch time Flashcards

commodity options

1
Q

provides a buyer the right to buy a futures contract at a preset price

A

calls

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2
Q

obligates a seller to sell a futures contract at a preset price

A

calls

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3
Q

provide a buyer with the right to sell a futures contract at a preset price

A

puts

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4
Q

obligates a seller to buy a futures contract at a preset price

A

puts

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5
Q

are in-the-money when the market is up above the strike price

A

calls

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6
Q

are in-the-money when the market is down below the strike price

A

puts

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7
Q

premium =

A

intrinsic value + time value

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8
Q

An options intrinsic value is equivalent to…

A

its in-the-money amount

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9
Q

When does an option have zero intrinsic value?

A

when it is at-the-money or out-the-money

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10
Q

number based on the time left until expiration and the volatility of the underlying commodity

A

time value

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11
Q

this number is set in the marketplace and is negotiated

A

premium

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12
Q

Long straddle:

A

buy both a call and a put; investors would be seeking volatility

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13
Q

Short straddle:

A

sell both a call and a put; investors seeking stability

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14
Q

Bullish or Bearish?
debit call spread

A

bullish

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15
Q

Bullish or Bearish?
credit call spread

A

bearish

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16
Q

Bullish or Bearish?
debit put spread

17
Q

Bullish or Bearish?
credit put spread

18
Q

consists of two spreads, both call or put on the same commodity and the same expiration month where one is bullish and one is bearish

A

butterfly spread

19
Q

created by buying an option with a lower strike price, selling two options at the same strike price in the middle, and buying an option with a high strike price

A

butterfly spread

20
Q

For a butterfly spread, how is the maximum gain realized on the underlying commodity?

A

if the underlying commodity is at the strike price. a butterfly spread is profitable if the price remains stable (it has a neutral position)

21
Q

consists of two spreads, both call or put on the same commodity and the same expiration but with different strike prices

A

condor spread

22
Q

is a debit spread and profitable if the price remains stable (i.e. low volatility)

A

long condor spread

23
Q

is a credit spread and profitable if there’s high price volatility

A

short condor spread

24
Q

consists of selling two spreads, one is a call and one is a put on the same commodity and the same expiration month but with four different strike prices

A

iron condor spread

25
What are the details of the iron condor spread?
- credit spread - neutral strategy - max profit is realized if all options expire
26
For an iron condor spread, the maximum loss is limited but will be realized if...
the price of the underlying commodity moves significantly in one direction or the other (i.e., if there's volatility).
27
synthetic long call =
long put + long futures
28
synthetic long put =
long call + short futures
29
synthetic long futures =
long call + short put
30
synthetic short futures =
long put + short call
31
conversion =
long futures + long put + short call
32
reversal =
short futures + long call + short put
33
these types of options may only be exercised on the business day prior to expiration
European-style option contracts
34
these types of options may be exercised at any time during their life
American-style option contracts
35
An order must be time stamped within...
one minute of receipt by the FCM.