Options

Question 0

A Buyer of a Call option prefer If the underlying asset moves…?

Answer 0

Moves up, the value og the option increases when the Price of the underlying asset exceeds the exercise Price.

Question 1

As the seller of a Call option, in what direktion would you prefer the underlying asset to move?

Answer 1

Down If it goes down, or stays below the exercise price, the option wont be exercised.

Question 2

A put option is….?

Answer 2

An option to sell

Question 3

A Call option is an..?

Answer 3

Option to buy

Question 4

The value of the option increases If risk is High or low ?

Answer 4

The higher the risk the bettet in regards to options.

Question 5

How Can You value an option?

Answer 5

1. Binomial decision threes 2. Put-Call parity 3. Black-scholes model 4. Risk neutral probabilities

Question 6

If there is an increase in the stock price, then the Call option price is …. Affected ?

Answer 6

Positively

Question 7

If there is an increase in the exercise price, then the Call option price is …. Affected ?

Answer 7

Negatively

Question 8

If there is an increase in the interest rate, then the Call option price is …. Affected ?

Answer 8

Positively

Question 9

If there is an increase in the time to expiration, then the Call option price is …. Affected ?

Answer 9

Positively

Question 10

If there is an increase in the volatility of the stock price, then the Call option price is …. Affected ?

Answer 10

Positively

Question 11

What is the difference between a European option and an American option?

Answer 11

European option: You can only exercise at the exercise date. American option: You can exercise anytime between now and the exercise date

Question 12

If the Stock is worthless, how is the Price of a Call affected?

Answer 12

Worthless as well

Question 13

Call option Exercise date today Exercise Price 450 Stock Price 500 What is the value of the option?

Answer 13

It is 50, You have the option to buy the Stock for 450, and the market Price is 500. Therefore You exercise

Question 14

To find the value of an option, one can just discount the future cashflows?

Answer 14

Wrong, You cant. The risk changes each time the stock Price changes, the DCF method assumes constant risk.

Question 16

Options are primarily used for..?

Answer 16

Hedge risk, currencies, interrate risk or risk on commodities. Management compensation

Question 17

What are the main tools used to design hedges?

Answer 17

Futures Forwards Swaps Options

Question 18

What is a forward contract?

Answer 18

A contract specifying a fixed price in a future period, on a trade between two counterparties. The buyer of the product is said to have a long position The seller is said to have a short position. This contract is a commitment, and each party have to fulfill their duties.

Question 19

What is a Future contract?

Answer 19

.

Question 20

What is the formula for a Future contract?

Answer 20