Investment Ch 2.pptVIP

* 2-* Futures Contracts A futures contract calls for delivery of an asset (or in some cases, its cash value) at a specified delivery or maturity date for an agreed-upon price, called the futures price, to be paid at contract maturity. Long position: Take delivery at maturity Short position: Make delivery at maturity 2-* Options Call: Right to buy underlying asset at the strike or exercise price. Value of calls decrease as strike price increases Put: Right to sell underlying asset at the strike or exercise price. Value of puts increase with strike price Value of both calls and puts increase with time until expiration. 2-* Derivatives Markets Options Basic Positions Call (Buy) Put (Sell) Terms Exercise Price Expiration Date Assets Futures Basic Positions Long (Buy) Short (Sell) Terms Delivery Date Assets 2-* Payoffs from Options X = Strike price, ST = Price of asset at maturity Payoff Payoff ST ST X X Payoff Payoff ST ST X X 2-* Comparison Option Right, but not obligation, to buy or sell; option is exercised only when it is profitable Options must be purchased The premium is the price of the option itself. Futures Contract Obliged to make or take delivery. Long position must buy at the futures price, short position must sell at futures price Futures contracts are entered into without cost Options Reference Educator .hk/eng/prod/secprod/dwrc/dwrc_cal/index.html * * * * * * * * * * * * * * * * * * * * Track average returns Compare performance Base of derivatives * * * Nikkei (Japan) FTSE (Financial Times of London) DAX (Germany) CAC 40 (Paris) MSCI (Morgan Stanley Capital International) Hang Seng (Hong Kong) Straits Times (Singapore) TSX (Canada) * * * * INVESTMENTS | BODIE, KANE, MARCUS INVESTMENTS | BODIE, KANE, MARCUS Copyright ? 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin CHAPTER 2 Asset Classes and Financial Instruments 2-* Asset Classes Money market instruments Capital market instruments Bonds Equity Securities Deriva