Financial Options

Question 1

why do option markets experience substantial growth in trading volume?

Answer 1

due to the increased use for hedging and investments

Question 2

options is a derivate contacts that…

Answer 2

gives the option purchaser the right not the obligation to buy or sell a given amount of the underlying security at a. fixed strike price per uni for a specified time period

Question 3

option premium

Answer 3

cost of the option

Question 4

call (put) option

Answer 4

gives the buyer the option the right to buy (sell) foreign currency

Question 5

payoff

Answer 5

a function of the value of the underlying on the exercise date

Question 6

the underlying

Answer 6

the asset upon which the option is sold

Question 7

long option P&L

Answer 7

payoff - option premium

Question 8

short option P&L

Answer 8

payoff + option premium

Question 9

ITM

Answer 9

in-the-money, if it would be profitable to exercise today (S>K for call)

Question 10

ATM

Answer 10

At-the-money if the profit would be zero fi the option is exercised today (S=K for call)

Question 11

OTM

Answer 11

out-of-money. if it is not profitable to exercise today (S<K for call)

Question 12

Intrinsic value

Answer 12

the payoff one could get by exercising the option today

Question 13

break even price (call option)

Answer 13

the spot price at which the buyer does not make any profit or call

Question 14

future margins

Answer 14

deposits required to ensure that a clearing member can cover potential losses with their trading positions, help ensure clearing members can meet obligations

Question 15

long call strategy

Answer 15

an option you have purchased granting you the right to buy from the writer at a set price

Question 16

short call strategy

Answer 16

an option you have written by granting the buyer the right to buy from you , the righter at a set price

Question 17

long put strategy

Answer 17

an option you have purchased granting you the right to sell the writer at a set price

Question 18

short put strategy

Answer 18

an option you have written granting the buyer the right to sell to you, the writer, at a set price

Question 19

covered call strategy

Answer 19

as per the short call but the underlying is held

Question 20

option value

Answer 20

intrinsic value + time value

Question 21

time value

Answer 21

the value of the option due to that the underlying can move favourably during the remaining time left until maturity