AFM121 Lecture Notes - Lecture 10: Call Option, Bond Option, Forward Contract

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM121
• Professor: John D' Amato

Document Summary

Obligate both parties to exchange a certain quantity of an underlying asset at a specified future point in time at a predetermined price. Standardized contracts: public (transparent, ease of early termination, clearinghouse provides third-party guarantee, canadian derivatives clearing corporation (cdcc, gains/losses marked-to-market daily, heavy regulation, delivery rarely occurs, visible trading costs (i. e. commission, used by retail, institutional, corporations. Wheat, corn, soybeans, canola, livestock, food products, forest products, precious and industrial metals, energy product: financials. Equities, interest rate products, currencies: contracts between a buyer and seller based on an underlying security. Issues and guarantees all equity, bond, and stock index option positions: opening position is when an investor initially buys or sells option contracts, buying the option(s) is a long position, selling is a short position. Submitting an exercise notice to the clearing corporation: the exercise is assigned to a member firm and then assigned to one of its accounts, buyer can let the option expire.