Options

Question 1

What are the measures of volatility?

Answer 1

Delta, Gamma, Theta, Vega and Rho.

Question 2

What is a synthetic call?

Answer 2

Created when a trader buys an underlying stock and buys a put as well.

Question 3

What is a covered call?

Answer 3

Where the trader buys the underlying stock and sells a call.

Question 4

What is a collar?

Answer 4

An option strategy where a trader who owns the stock or an underlying asset buys a put and sells a call. The profit range is locked in. The loss is limited to the amount paid for the put it less the premium received for the call.

Question 5

What are the four major types of option volatility?

Answer 5

1) Future volatility, 2) Historical volatility, 3) Forecast volatility and 4) Implied volatility.

Question 6

What are the steps for understanding a particular transaction?

Answer 6

First, identify who bears the risk. Second, decide what the limitations are on the risk. Also look at what risks are able to be identified in the transaction.