Nonequity Options Flashcards
For most world currency quotes, the decimal must be moved how many places to the left to convert to U.S. dollars?
Two places to the left
An investor buys an OEX May 475 call at 10. What is his strategy?
Bullish on the S and P 100 Index
What is the primary use of VIX options?
To give individual investors the ability to trade market volatility
What could an investor do if she expects the market to decline and volatility to increase?
Buy VIX calls
An investor, believing interest rates will rise, could profit by taking what yield-based option position?
Buy yield-based calls or write yield-based puts
Identify the acronym: VIX
CBOE’s Volatility Index
An investor buys an OEX May 475 call at 10. What is his breakeven point?
475 + 10 = 485 (strike price plus the premium or CALL UP)
An investor buys an OEX May 475 call at 10. What is his maximum gain?
Unlimited
Yield-based options are ______-based.
Yield-based options are yield-based (rather than based on price).
What could an investor do if she expects the market to rise and volatility to decrease?
Buy VIX puts
There is an inverse relationship between the movement of a world currency and the _____________.
There is an inverse relationship between the movement of a world currency and the U.S. dollar.
To convert the terms of a Japanese yen contract to U.S. dollars, the decimal is moved ______ places to the left.
To convert the terms of a Japanese yen contract to U.S. dollars, the decimal is moved four places to the left.
What is the VIX?
The CBOE Volatility Index Options, which is a leading barometer of investor sentiment and market volatility
Is there any difference between the exercise of an index option and an equity option?
Yes, index options are cash-settled while equity options are settled by delivery of a specific security.
What is the underlying instrument used to calculate the VIX?
Real-time S and P 500 option bid/ask quotes weighted to a constant 30-day measure of expected volatility
What are the hours of operation for the Interbank Market?
24 hours a day
Equity options are based on a 100 share multiplier, while index options are based on a $______ multiplier.
Equity options are based upon a 100 share multiplier, while index options are based on a $100 multiplier.
Volatility tends to increase during a ___________ market.
Volatility tends to increase during a declining market.
How is the premium for a world currency option calculated?
Contract size x the premium (with decimal moved appropriately)
What is the settlement for spot trades?
Two business days
VIX options use a __________ style exercise and settle in ______.
VIX options use a European style exercise and settle in cash.
An investor buys an OEX May 475 call at 10. What is his maximum loss?
The premium of $1,000 (the value of 10 x $100)
True or False: If an investor expects the U.S. dollar to strengthen, she could profit by buying U.S. dollar calls.
False. There are no U.S. dollar calls or puts issued; therefore, all answers must be based on a world currency.
When does volatility tend to increase?
When the market (S and P 500) drops abruptly
World currencies trade in the _____________________.
World currencies trade in the Interbank Market.
What are two uses of index options?
To speculate on market movement or to hedge a portfolio
A _______-based index measures the movement of a particular sector or industry.
A narrow-based index measures the movement of a particular sector or industry.
True or False: The buyer of a British pound call will profit if the British pound rises with a falling U.S. dollar.
True
True or False: The Interbank Market is a fully regulated and centralized market.
False. The Interbank Market is unregulated and decentralized.
A _______-based index measures the market as a whole.
A broad-based index measures the market as a whole.
What should an investor do on the VIX if she anticipates an increase in volatility?
Buy VIX Calls. If volatility increases, the underlying VIX will rise and the calls will increase in value.
Upon exercise, what must index option sellers deliver to the buyers?
The in-the-money amount of the contract (based on the close) multiplied by $100
