Options

Question 1

In the Money

Answer 1

The holder is profiting from exercising the option

Question 2

Out the Money

Answer 2

The holder is losing from exercising the option

Question 3

At the Money

Answer 3

Option Price = Asset/Stock Price

Question 4

What would be the In the Money Scenario for a Call Option Holder

Answer 4

St > K

Question 5

What would be the In the Money Scenario for a Put Option Holder

Answer 5

St < K

Question 6

What would be the Out the Money Scenario for a Call Option Holder

Answer 6

St < K

Question 7

What would be the Out the Money Scenario for a Put Option Holder

Answer 7

St > K

Question 8

Asian Option

Answer 8

Payoff depends on the average market price over the option’s period of time

Question 9

Lookback Options

Answer 9

Depend on the min or the max market price of the duration of the asset’s life.

Question 10

Digital Options

Answer 10

Binary(met or does not mean the condition).Fixed payoff if the condition is met ( i.e.if strike > option , $10 dollars )

Question 11

CDCC Canadia Derivatives Clearing Corporation

Answer 11

Middle Man in between writers and holders. Make sure people disclose margins and perform under the contract.

Question 12

What is a Protective Put theory

Answer 12

Too afraid to invest and bear losses, but still want to invest.

1. Buy a stock
2. Buy a put option ( wright to sell ), will exercise if St < K.

Question 13

Covered Call. What is the objective of this strategy ? What is the payoff ?

Answer 13

Option writters are risky and are naked. Covered means the person bought the stock before writting the document that makes it sell a stock. 1. Buy a stock 2. Write/sell a call.
Betting on ?

Strategy to follow trough with selling the asset at price X. X is a price they were willing to sell it for. SIMUATING selling a normal share to an individual.

If the person did the call without being it covered it would have to buy the asset in the market at price St ( supper expensive ) ans take the loss from selling it a lower price.

Question 14

Straddle

Answer 14

Doudle D => Doubt => Does not know where the stock is going to go so shots everywhere.
1. Buy a Long
2. Buy a Call
=> Only exercices the one it will give it profit.

Question 15

Spreads

Answer 15

twins formation = spermatozoide spread into two resulting in two equal human beings.

Combination of two options that have different strike price or different maturity

Question 16

What are the 2 types of spreads ?

Answer 16

Bull and Bear

Using Calls

Question 17

Describe/define Bulling Spread Strategy. What is the optimal sceraio you are hoping for ?

Answer 17

1. Betting on market going up

a) Buy a Call Option(go short) with a low strike price. K1
b) Write a Call Option with a high strike price. K2.

Betting on Strike Price going over K2

Question 18

What will be the payoff of a Bulling spread with K1 < St < k2

Answer 18

St - K1

Question 19

What will be the payoff of a Bulling Spread when St > K2

Answer 19

K2 - K1

Question 20

What are the long and short posistions ?

Answer 20

Long means you are the holder of the option (Long = Tall = Power => decide when to exercise)
Writters need to be consise and direct. Write short sentences. Short = writter of the option

Question 21

Describe/define Bearing Spread Strategy

Answer 21

1. Write a call with low K1.

2. Buy/Long a call with a high K2

Question 22

What are you hoping for on a bearing strategy?

Answer 22

Fo the Stock price to fall below K1

Question 23

Which scenario contains the breakeven point of a bulling?

Answer 23

St > K1

Question 24

Which scenario contains the breakeven point of a bulling?

Answer 24

St > K2

Question 25

What is a collar Strategy

Answer 25

Collar around the whole neck => protecting against losses below X1.

Protective Put and Covered Call.

1. Buy the Option at So
2. Buy the Put X1
3. Write the Call at X2