Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

MOS 1023 Final > Lecture 8: Derivatives > Flashcards

Lecture 8: Derivatives Flashcards

1
Q

What are derivatives?

A

derive all or part of their value from another security

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Why do derivatives exist?

A
  1. They are actively traded
  2. They allow for more investment opportunities
  3. lower cost
  4. Increase leverage: returns are magnified
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are options

A

options are sold to give you an option of buying something else

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are call options?

A

you have bough the ability to call (buy) the option

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are put options?

A

you have bought the ability to sell the option

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the exercise price?

A

the amount that you buy each share for

ex. $1 for 100 shares

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the option premium?

A

Is the amount that you buy the option to buy the shares for

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the expiration date? And what are the 3 kinds?

A

the last date that the option can be exercised

  1. American
  2. European
  3. Bermudan
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is an American expiration date?

A

you can buy the exercise any dat within the time frame

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the European expiration date?

A

you can only buy the option on a special day

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the Bermudan expiration date?

A

you can buy the option on 1+ specific days of a time frame

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What does the buyer and seller expect the price to do in a call option?

A

buyer: expects the price to increase (bullish)
seller: expects the price to decrease (bearish)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What does the buyer and seller expect the price to do in a put option?

A

buyer: expects the price to decrease (bearish)
seller: expects the price to increase (bullish)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are the two types of trading options?

A
  1. ME

2. CBOE -chicago board options exchange

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What does options trading do?

A

facilitates offsetting positions through a clearing corporation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What happens to the call and put option in the “in-the-money” option?

A

Call: S>E
Put: E>S

17
Q

What happens to the call and put option in the “out-of-the-money” option?

A

Call: E>S
Put: S>E

18
Q

What factors affect prices?

A 
Stock price
Exercise Price
Time and Maturity
Stock Volatility
Interest Rates
Cash Dividend
19
Q

What is a right?

A

You have the right to purchase a number of shares on a specific time and price (few months)

20
Q

Is a right transferrable or detachable?

A

transferrable

21
Q

What is a warrant?

A

you have the warrant to purchase a number of shares at a specific time and price (within years)

22
Q

What is a warrant usually attached too?

A

debt

23
Q

What is spot or cash market?

A

price refers to immediate delivery

24
Q

What is forward market?

A

price refers to delayed delivery

25
Q

What is future market?

A

set features for delivery

26
Q

What are 2 characteristics of a future market?

A
  1. A place where investors can trade with one another

2. performance is monitored by a clearing house

27
Q

What are 2 types of future markets?

A
  1. commodities (agriculture, metal, energy)

2. financials (currencies, debt)

28
Q

What are future exchanges?

A

they are nonprofit, voluntary places where future contracts are traded with established rules

29
Q

What is a clearing corporation?

A

a corporation associated with exchange (mediator)

30
Q

What is the short position?

A

seller that commits a trader to deliver at contract maturity

31
Q

What is long position?

A

a buyer that commits a trader to purchase an item at contract maturity

32
Q

What is a future margin?

A

good faith deposit between a buyer and seller usually being a less than 10% initial

33
Q

When do margin call? and what is then to happen?

A

when price goes against investor

  • deposit cash or close account, make marked to market daily or withdraw profit
34
Q

What is a maintenance or variation of a future margin contract?

A

where the investor’s net equity cannot drop below

35
Q

What are hedgers?

A

are people that need or have the commodity. they watch their ass buy purchasing futures to offset risk

36
Q

What are speculators?

A

these are people that are just looking for a quick buck. they absorb X/S demand generated by hedgers and assume the risk that hedgers avoid

MOS 1023 Final (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions