Options and Futures Trading Basics

<p>22.17 (C)</p> Signup and view all the answers

<p>The specific time of day when options contracts expire and futures are settled. (A)</p> Signup and view all the answers

<p>Settlement time refers to the time when a futures contract settles for the day, while expiration time is the last day that the option can be exercised. (D)</p> Signup and view all the answers

<p>The process of clearing and finalizing trades for futures contracts. (D)</p> Signup and view all the answers

<p>Futures contracts can be used to hedge against the risk of options expiring out of the money. (B)</p> Signup and view all the answers

<p>It affects the pricing of options by influencing the value of the underlying futures contracts. (C)</p> Signup and view all the answers

<p>To limit the risk of losses on a trade. (B)</p> Signup and view all the answers

<p>A trader wants to buy 100 shares of a stock at $50 per share or sell 100 shares at $45 per share if the price drops below that level. (C)</p> Signup and view all the answers

<p>The sell order will be executed, and the buy order will be cancelled. (C)</p> Signup and view all the answers

<p>The execution of one order automatically cancels the other order. (C)</p> Signup and view all the answers

<p>Both orders will be canceled. (A)</p> Signup and view all the answers

<p>Put values decrease (C)</p> Signup and view all the answers

<p>It offsets option gains/losses (B)</p> Signup and view all the answers

<p>It is dynamic (A)</p> Signup and view all the answers

<p>An increase in the underlying leads to a decrease in put values (D)</p> Signup and view all the answers

<p>Unpredictable changes in option values (D)</p> Signup and view all the answers

<p>650.00 dollars (A)</p> Signup and view all the answers

<p>$32,500,000 (D)</p> Signup and view all the answers

<p>The number of units of the underlying commodity represented by one futures contract (C)</p> Signup and view all the answers

<p>$3,250,000 (A)</p> Signup and view all the answers

<p>$0.01 (B)</p> Signup and view all the answers

<p>Delta approaches -0.5 (B)</p> Signup and view all the answers

<p>Delta is always negative and approaches -1 as the option approaches expiration. (B)</p> Signup and view all the answers

<p>Delta increases (A)</p> Signup and view all the answers

<p>Delta is a measure of the option's expected payoff. (D)</p> Signup and view all the answers

The specific time when options expire and futures settle for the day.

Prices based on expected future market conditions.

An average price estimated for a future date.

The factor used to calculate option value per contract; for corn, it's 5,000.

The market where buyers bid and sellers ask for prices.

Prices are stated in cents, not whole dollars.

A trading order type that cancels one order when the other is executed.

The process of completing a buy or sell transaction in the market.

A feature where an unfulfilled order is removed automatically after another order is executed.

An order to buy or sell a security immediately at the current market price.

Orders that depend on the fulfillment of another order.

When the underlying asset increases in value, option prices generally decrease.

Delta measures the rate of change of an option's price relative to the underlying asset's price changes.

Maintaining the correct delta ratio involves balancing the delta of options and the underlying asset to mitigate risk.

Delta is not static; it changes as the market conditions and the underlying price change.

Holding the appropriate delta position can counteract potential losses or gains from options trading.

An options strategy involving buying a call and a put with different strike prices.

The actual profit in dollars from a trading strategy.

The expected benefit or advantage over a trade's cost.

A contract giving the holder the right to sell an asset at a specified price.

The total price paid to acquire the strangle position.

In-the-money puts have a delta that approaches -0.5 as implied volatility increases.

With increased implied volatility, delta for ITM puts moves towards -0.5; decreased IV moves it toward -1.

Delta changes based on the time remaining until an option expires; longer to expiry can mean higher delta sensitivity.

A measure of market expectations for future volatility, influencing option pricing and delta.

For ITM puts with decreased implied volatility, delta approaches -1, indicating greater sensitivity to price declines.