lecture 16

Question 1

3 reasons to consider options

Answer 1

price insurance

limited financial obligation

market flexibility

Question 2

what is a put option?

Answer 2

a contract that gives the put option purchaser the right, but not the obligation, to sell an underlying asset at a specific price during a specific time period

Question 3

what is a call option?

Answer 3

the call option purchaser has the right but not the obligation to buy an underlying asses at a specific price and time

Question 4

when are gains or losses on futures contracts settled?

Answer 4

each day after the markets close

Question 5

futures trading gains, credited to a clients margin account can be withdrawn by the client when?

Answer 5

as soon as the funds are credited

Question 6

a wide or weakening basis will benefit what kind of hedger?

Answer 6

long

because he is locked in at a higher price than the cash market

Question 7

a narrow or strengthening basis will benefit what kind of hedger?

Answer 7

short

spot pricing is going up so physical commodity is more valuable