Reading #59&60- Futures Mkts, Contracts & Options Flashcards
major difference between future and forward contracts
future contracts are standardized and done through clearinghosue
define initial margin
“money that must be deposited in futures account before any trading takes place”
define maintenance margin
“amt of margin that must be maintained in futures account”
define variation margin
“funds that must be deposited into account to bring it back to initial margin amt”
define settlement price
closing price, but not just last trade; “average of prices of trades during last period of trading”
Eurodollar futures - long position pays or receives when rates decrease?
receives - opposite form FRA
define “long call”
“buyer of call option - right to buy underlying asset”
define short call
“writer (seller) of a call - obligation to sell underlying asset”
define long put
“buyer of put option - right to sell underlying asset”
define short put
“writer of a put - obligation to buy the underlying asset”
define american options
can be “exercised at any time up to and including the contract’s expiration date”
define european options
can be “exercised only on the contract’s expiration date”
FORMULA: call option in-the- money
If S-X >0 (S = selling and X = bought share for price)
FORMULA: call option out-of-the-money
If S-X< 0
FORMULA: options that are at-the-money (put and call)
S=X
FORMULA: put option in-the-money
if X-S>0 , bought the share (s) and exercising at X
FORMULA: put option out-of-the-money
if X-S<0
LEAPS (long-term equity anticipatory securities)
most options expire 2-4 months of current dates, leaps have expirations +1 year
OTC options
for retail trade, largely unregulated
define financial options
“include equity options and options based on stock indices” can include interest rates and foreign currencies
