derivatives

Question 1

american style option

Answer 1

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

Question 2

arbitrage

Answer 2

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 arbitrager

Question 3

arbitrage

Answer 3

the simultaneous purchase and sale of a security on separate exchanges at prices which yield a profit to the arbitrageur

Question 4

assigned

Answer 4

designated to fulfill the writers obligation on a call or put option for an option buyer who decides to exercise the option

Question 5

at the money

Answer 5

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

Question 6

call option

Answer 6

the right to buy a specified number of shares at a specified price (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’s stock price is expected to rise

Question 7

canadian derivatives clearing corporation

Answer 7

service organization that clears, issues, settles, and guarantees options, futures, and futures options traded on the Bourse de Montreal

Question 8

cash secured put write

Answer 8

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