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3 Cards in this Set
- Front
- Back
- 3rd side (hint)
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Future - buyer agrees to pay a predetermined amount for the delivery at future date and seller agrees to deliver the asset at in exchange for money Long - buyer Short - seller |
Open - the initial trade Close - the assets don’t end up being delivered |
Covered - seller of the future has the underlying asset to exchange Naked - seller doesn’t have the underlying asset needed for exchange when contract made. Could be unlimited risk |
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Options - gives the buyer the right, but not the obligation, to buy or sell an asset at a predetermined price on or before a prespecified date / between two Difference between future & option = option gives the right to buy or sell whereas future is legally binding obligation |
Call option - buyer has the right to buy the asset at the excersize price. Seller is obliged to deliver if excersized Put option - the buyer has the right to sell the asset at exersize price. Seller of put option is obliged to take delivery and pay price if optioned |
Sellers of options = writers ET contracts = settled with a clearing house Premium = money paid by buyer/holder to writer at beginning of option contract Holder can only lose premium but profit is unlimited, writer’s loss is unlimited but can only profit the premium |
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ICE Futures Europe & NYSE Euronext - interest rates and bonds, equity indices (FTSE) & individual equities (HSBC) Eurex = Frankfurt - german bonds futures & options. Also trades a range of products for European markets |
ICE = worlds largest derivatives exchange - energy commodity contracts for crude oil, refined products, natural gas, power, emissions, futures and options on bonds, equities & indices North America include - agricultural, currency & stock index futures and options LME = futures and options contracts on range of metals - aluminium, copper, plastic etc |
Adv - remove uncertainty of price & lack of supply - hedge risk associated with portfolio or individual stock - speculate on assets and price movements Disad - unlimited losses - thrive on price volatility, need lots of skills and experience - counterparty party may default in OTC so need to do risk assessment |
