Investing Advanced-Options_Futures

Investing Advanced-Options_Futures - Advanced Investing...

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Advanced Investing Section-Discussion Questions I. What is a Hedge Fund?- A hedge fund is a very aggressive fund that participates in long, short, leverage, and derivative positions in order to gain a higher than normal return. They are not liquid and usually require you to leave your money in for at least a year. II. Options and Futures are a “Zero Sum Game”-What does this mean? Options and futures are a zero sum game because the gain for one person represents a loss for the other. This means that the total wealth gained zeros out. III. What is a derivative? A derivative is a security whose price is dependent on an underlying asset. It is a contract between two or more parties and price is determined by fluctuations in the asset. IV. What is an option? V. What are the differences between the types of “options”? 1. Call Options A call option gives the owner the right to buy a security at a particular price. 2. Put Options A put option gives the holder the right to sell a security at a particular price. 3. Employee stock options Stock options given to employees to encourage them to invest in the company and create value within the company.
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4. Index Options An index option is an option to either purchase or sell a market index at a certain price. 5. Debt Options 6. Others?? At the money - when the price of the underlying security is equal to the strike price. Out of the money- Strike price is greater than the price of the security. In the money- Strike price is less than the market price. VI.
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This note was uploaded on 04/15/2008 for the course BUS 425 taught by Professor Hart during the Spring '08 term at N.C. State.

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Investing Advanced-Options_Futures - Advanced Investing...

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