unit 5/6

Question 1

option contracts

Answer 1

type of derivative investment. derivative is a contract that derives its value from an underlying asset.
2 parties: a buyer and a seller. buyer has the RIGHT to take an action –> buy underlying asset from or sell the asset to the seller

Question 2

premium

Answer 2

the amount paid for the contract when purchased or received for the contract when it is sold

Question 3

buyer

Answer 3

is called the owner, the holder, or the party who is long the contract. have right to exercise contract
buyer risks losing the premium paid for the contract if the option expires as worthless

Question 4

seller

Answer 4

called the writer or party who is short the contract. seller will be obligated to perform if the buyer chooses to exercise the contract
seller could profit the premium if the contract is ultimately worthless

Question 5

buyers of calls

Answer 5

are bullish because they think the price will go up (go long)

Question 6

call

Answer 6

a contract that gives the option buyer the right to buy an underlying asset at a specified price within a specific time period

Question 7

breakeve