Chapter 9 (1 Q) Types and Characteristics of Derivative Securities Flashcards

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1
Q

Opening an Options Account

A

No specific rule in NASAA

Must have a designated supervisor approving accounts

Have to fill out the Options Disclosure Document (ODD)

Asks about investment experience and knowledge

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2
Q

Options

A

Derivative securities (derive value from an underlying instrument)

Buyer receives the right, seller has the obligation

All options are for 100 shares

Option cost is called a premium and is dollars per share

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3
Q

American vs European Style options

A

American= Anytime exercise

European= Expiration date

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4
Q

Straddle

A

Buying a put and a call of one security

Seeking volatility in the price

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5
Q

Covered Calls

A

Considered the most conservative option strategy

Writing a naked call is considered the most risky strategy

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6
Q

Forward Contracts

A

Exchange commodities at a future date for a specific price

Considered illiquid

Each party risks the credit and trustworthiness of the other

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7
Q

Futures

A

Exchange traded commodity obligations

Gains are credits
Losses are debits

All accounts must be settled before opening of trading the next day on futures contracts

98% of futures are offset at the clearing house before actual delivery

Higher price means that the buyer of the contract earned a profit

A farmer would sell a contract to lock in the price they will receive

Do not come under supervision of SEC

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