Lecture 10 Flashcards
1
Q
What are the two kinds of options
A
call
put
2
Q
What are the buyer and seller of a option known as respectively?
A
holder
writer
3
Q
What are the two kinds of expiry dates for options?
A
american
european
4
Q
What are the types of profits for an option
A
in-the-money
out-of-the-money
at-the-money
5
Q
What are the factors influencing intrinsic value
A
Current share price
Exercise price
6
Q
What are the factors influence time value
A
expected volatility of underlying share
short-term risk free interest rate
Time to expiry
anticipated cash payments on the underlying share
7
Q
What are the 4 basic options trading strategy
A
long call
short call
long put
short put
8
Q
Why do derivatives exist?
A
hedging (conservative) leveraged trading (aggressive )
9
Q
What is the key difference between basic instruments and derivative instruments
A
the claim on company income and assets
