The options market Flashcards
What are the 4 options types ?
-Call
-Put
-European
-American
What is a call option ?
Gives the holder the right to buy the underlying asset for a certain price
What is a put option ??
Gives the holder the right to sell at a certain price
What is a European option ?
Can only be exercised at the end of its life
What is an American option ?
Can be exercised at any time up to the expiration date ?
What is the main differences between options and forwards and futures ?
-Options gives the holder the right to buy or sell whereas forwards or futures holders have committed themselves to buy or sell at a particular date
What is the option price ?
The premium needing to be paid in order to invest in an option
What are the option positions
-Long call = buy a right to buy
-Short call = buy a right to sell
-Long put = sell a right to buy
-Short put = sell a right to sell
What are Bullish strategies ?
-Long call
-Short put
What are bearish strategies ?
-Short call
-Long put
On a graph show a long call option profit
For a call option what is the maximum potential loss for the investor ?
This is given by the purchase price of the option
Will an investor always buy an underlying asset through a call option ??
They will only buy through a call option if it is cheaper to do so than purchase the asset in the market
Would you exercise an option if:
C0 = 8
X = 100
ST = 128
YES
How do you find the profit or loss of a option ??
On a graph show profit from a Long put option
When should a put option be exercised ?
Would you exercise an put option if:
C0 = 8
X = 100
ST = 128
NO
When will a call option be profitable ??
An investment in a call option will be profitable if the price of the underlying asset at expiry (ST) exceeds the exercise price (X), by more than the price paid for the call (C0):
When will a put option be profitable ??
An investment in a put option will be profitable if the exercise price (X) exceeds the price of the underlying asset (ST) at expiry by more than the price paid for the put (P0):
