Explain the difference between a put option and a short position in a futures contract.

Solutions

Expert Solution

Put option gives the holder or buyer of the option a right not the obligation to sell the underlying asset or stock at a specific price known as exercise or strike price. e.g. Assume you own a stock A and a put option on the stock with strike/exercise price of X. This put option gives you to right to sell the stock A at price of X if the price of the stock falls below X. The person who purchases such option is known as buyer or holder of Put Option and the person who sells such option is know writer of the option. Writer of the put option is under obligation to purchase the underlying stock if the buyer of the Put Option exercises its right to sell.
The short position in futures contract is the position that can be entered by the person to earn profit from a fall in the price of the underlying. The short futures position is also used by the holder of the stock or asset to lock in a price of such as asset or commodity.

jeff jeffy answered 11 months ago

Next > < Previous

Related Solutions

Explain the difference between a long call option and a long futures position.

Explain the difference between a forward contract and a futures contract.

Explain the difference between a call option and a put option. Explain the difference between an...

Explain the difference between a call option and a put option. Explain the difference between an American option and European option. Find the value of a call option using the binomial option pricing formula for single period when given the following information: you have an option with 6 months until expiration, the payoff in the up scenario is $12, and the payoff in the down scenario is $0, the risk-free rate is 5%, the weight for the up scenario is...

One distinguishing difference between the buyer of a futures contract and the buyer of an option...

One distinguishing difference between the buyer of a futures contract and the buyer of an option contract is that the futures buyer: A) Pays a much higher premium than option buyers B) Has an obligation to purchase, not a choice C) Can lose no more than initial premium D) Has increased rather than reduced risk

You have entered a short position in an oil futures contract. The contract size is 1,000...

You have entered a short position in an oil futures contract. The contract size is 1,000 barrels for each contract. The initial margin required is $20,000 per contract. The maintenance margin is $16,000. The contract is entered at market close on January 7 at a price of $100/barrel. Fill in the table below. If a margin call occurs, indicate in the margin call column the amount that has been added to the margin account as a result of the margin...

Indicate the difference between a call option and a put option?

Explain the difference between a call option and a put option. Would you use options in...

Explain the difference between a call option and a put option. Would you use options in your personal investment portfolio?

Explain the difference between a “long” and a “short” position in a stock. Explain if you...

Explain the difference between a “long” and a “short” position in a stock. Explain if you would take a long or a short position in the stock of a company that owns traditional mall properties. How are the dividends paid to preferred stockholders different from the dividends paid to common stock holders? In your response, be sure to clearly define what it means to be perpetuity. Explain the difference between the required rate of return and the expected rate of...

Please explain the difference between a currency forward contract and a currency futures contract. Include advantages/disadvantages...

Please explain the difference between a currency forward contract and a currency futures contract. Include advantages/disadvantages of both to a multinational company.

Draw the payoff picture for a short position in the put option given in the following...

Draw the payoff picture for a short position in the put option given in the following problem---- 1 Draw the payoff picture at expiration for a long position in a put option that has a premium of $3.50 and a strike price of $35.

Subjects