Flashcard: Fundamentals of Futures, Options, and Arbitrage — 16 carte

Futures — definition?

Standardized contracts to buy/sell at a future date.

Derivatives — role?

Facilitate risk management and speculation.

Equities — ownership?

Shares representing company ownership.

ETFs — purpose?

Diversified funds traded on exchanges.

Risk management — strategy?

Using derivatives to offset adverse price movements.

Arbitrage — mechanism?

Exploiting price discrepancies for risk-free profit.

Futures pricing — components?

Spot price, cost of carry, convenience yield.

Options — types?

Calls (buy), Puts (sell).

Option payoff — graph?

Shows profit/loss at different underlying prices.

Black-Scholes — purpose?

Theoretical options valuation model.

Futures — settlement?

Mostly cash, physical delivery rare (~2%).

Equities — dividend effect?

Dividends decrease call, increase put value.

Risk management — derivatives?

Set maximum/minimum asset values.

Arbitrage — example?

Buy gold in NY, sell in London if prices differ.

Futures — maturity dates?

Vary by commodity, e.g., monthly for oil.

Options Greeks — significance?

Measure sensitivity to underlying factors.