Options - Summary And Review
An option is a contract that grants its owner the right, but not the obligation, to make a transaction in an underlying commodity or security at a certain price within a set time in the future. Calls and puts are the building blocks of options strategy. They can be combined, sometimes with positions in underlying commodities, to form options spreads or synthetic instruments.
CFTC rules allow for the side-by-side trading of futures and options on futures on the same exchange. SEC regulations proscribe exchange-traded options and the underlying on the same exchange, by contrast. Options on futures allow investors to manage risk at one remove from the underlying where obligation to enter into contracts is symmetrical. Options permit holders to buy or sell the underlying, whereas writers (sellers) are obligated to satisfy the terms of the option. Options on futures add considerably to the risk management opportunities of futures investors.
- An out-of-the-money option's intrinsic value is:
- Its strike price minus is spot price
- Its spot price minus its strike price
- Its premium price
- 1 MNO May 20 put @ 2. At which spot price(s) would the long put be in-the-money?
a. I only
b. I and II
c. III and IV
d. IV only
- Which TWO are bullish option strategies?
I. Writing covered calls above market
II. Writing covered calls below market
III. Writing uncovered puts
IV. Writing uncovered calls
a. I and III
b. I and IV
c. II and III
d. II and IV
- Which statement is TRUE about writing covered calls?
a. It is a risk-free strategy
b. Physical delivery is not required upon exercise.
c. The writer must have cash on deposit equal to the cost to purchase the shares from the option holder.
d. It is a bearish strategy.
- A call bull spread:
- benefits the investor when the basis narrows.
- is an example of a calendar spread.
- consists of buying an in-the-money call and selling an out-of-the-money call.
- has no downside limit if the underlying commodity goes to $0.
- A strangle differs from a straddle in that the latter strategy uses different strike prices.
- All of the following strategies are bullish except
- Writing puts
- A credit put spread
- Short futures
- Long shares.
- An investor puts on a straddle trade if he is sure of the market's direction
- In a debit call spread, the breakeven price is
- The strike price minus the net premium
- The strike price plus the net premium
- Net premium in excess of the higher options's strike price.
- The net premium below the lower option's strike price.
- A synthetic long call consists of
- Long futures
- Short futures plus long put.
- Long futures plus long put.
- Long futures plus short call
MarketsExamine the Flatiron School as it pertains to the product it offers; learn how it monetizes its product and the role the school plays as an industry disruptor.
Mutual Funds & ETFsGet information about some of the most popular and best-performing mutual funds that are focused on commodity-related investments.
Chart AdvisorAgriculture stocks have experienced strong moves higher over recent weeks, but chart patterns on sugar, corn and wheat are suggesting the moves could be short lived.
Investing NewsShares of Glencore International, a leading multinational commodities and mining company, jumped by around 15% on London Stock Exchange, after the shares had gained about 71% earlier on the Hong ...
Investing BasicsPlain vanilla is a term used in investing to describe the most basic types of financial instruments.
InvestingCommodity prices have been heading lower for more than four years, being the worst performing asset class of 2015 with more losses in cyclical commodities.
InvestingWest Texas Intermediate oil futures have recently made pronounced movements. What do they bode for the world market?
InvestingGrowing global demand for quinoa has impacted Bolivian farmers' way of life. Should the American consumer be wary of buying this product?
EconomicsThe Fed continues to delay normalizing rates, citing inflation concerns and “global economic and financial developments” in explaining its rationale.
Investing NewsAlcoa plans to split into two companies. Is this a bullish catalyst for investors?
The estimated volatility of a security's price.
The most basic or standard version of a financial instrument, ...
A security with a price that is dependent upon or derived from ...
A securities license entitling the holder to register as a limited ...
A transaction that can cancel out a forward contract that has ...
The security that is delivered by the short position holder in ...
Financial advisors are not required to have university degrees. However, they are required to pass certain exams administered ... Read Full Answer >>
Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
If you are older than 59.5 and have been contributing to your IRA for more than five years, you may withdraw funds to pay ... Read Full Answer >>
If you are over 59.5, or separate from your plan-sponsoring employer after age 55, you are free to use your 401(k) to pay ... Read Full Answer >>
Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>