Chapter 17: Futures and Options

Question 1

Futures contract

Answer 1

Standardised, exchange-traded contract to buy or sell an asset on an agreed basis in the future.

Question 2

Long position

Answer 2

Having an economic exposure to the asset.

In futures and forward agreements, the long party is the party that has contracted to take delivery of the asset in the future.

Question 3

Option premium

Answer 3

This is the price paid for the option, by the option holder, to the option writer.

Question 4

Put option

Answer 4

The right - but not the obligation - to sell a specified asset at a specified price on a set date / dates in the future.

Question 5

Exercise / strike price

Answer 5

The price at which an underlying security can be sold to (for a put), or purchased from (for a call) the writer / issuer of an option.

Question 6

Traded option

Answer 6

Traded options are option contracts with standardised features, actively traded on organised exchanges.

Question 7

Warrant

Answer 7

An option issued by a company over its own shares.

The holder has the right to purchase shares at a specified price at specified times in the future from the company.

Question 8

American option

Answer 8

An option that can be exercised on any date before its expiry.