Question

In: Finance

__________ requirements serve to insure the performance of futures contracts. D. Margin B. Experience C. Age...

__________ requirements serve to insure the performance of futures contracts.

D. Margin

B. Experience

C. Age

A. Income

A put option is in the money if the strike price is __________ the market price of the underlying security.

C. less than

A. equal to

B. greater than

D. none of the above

Assume that you hold a short position in an oil futures contract at $40 per barrel and covered as the price rose to $50 per barrel, the profit/loss in your account would be __________ per barrel.

B. a loss equal to the option premium

A. $0

D. a $10 profit

C. a $10 loss

Expert Solution

MARGIN requirements serve to insure the performance of futures contracts.

Margin in derivatives market means the amount of equity contributed by an investor as a percentage of the current market value of securities held in a margin account. Buyer pays only a % of asset value "margin" and rest is borrowed from bank or broker.

A. A put option is in the money if the strike price is greater than the market price of the underlying security.

A put option gives the owner right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. Its value appreciates as the value of asset depreciates. Buyer of option basically is bearish about the asset and expects the price of underlying asset to fall in coming time period.

D. a $10 loss

With a short futures contract on oil with $40 barrel, trader fixed his cost of selling at $40. However, market is now buying the same at $50. Hence, the trae is at a loss of $10 with this contract

jeff jeffy answered 2 years ago

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