Topic 13: Options Flashcards
What is a currency option?
A contract between two parties where one party has the right but not the obligation to (buy)/(sell) a specific amount of a specific currency at a specific price (on or before)/(at) a specific date.
Where each option must pick one of the bracketed terms between slashes.
In the context of options, who is the writer, and the holder?
The writer sells the premium contract.
The buyer purchases the contract, and receives right to exercise the option.
What is the exercise / strike price of an option?
The price at which the asset may be purchased at if the option is exercised.
What is a call option?
The option for the holder to buy a particular asset at the strike price.
What is a put option?
The holder has the right to sell a particular asset at the exercise price.
What is the difference between an American and European bond?
- An American bond can be exercised on or before a particular date.
- A European bond can only be exercised on the specific date. (But tends to be cheaper.)
What does OTC mean? Specifically for options.
- Over the counter.
- Means it’s traded in an exchange.
What does it mean for an option to be in, at or out of the money?
