Options, Futures and Other Derivatives Ch1 Questions Part 1

[@munish259272]

Just found your channel...awesome work by you. I am trying to read that book after watching your videos. Thanks

[@saidalabed9417]

at 7:24, doesn't the investor lose money in the first case and gain in the second case because he is short the forward contract.

[@saidalabed9417]

Nevermind. Got it.

[@Shoota4259]

+Said Alabed please explain

[@ishankjain2393]

Hi Said, I too agree with this. I had the same doubt. Basically if you sell 1 British pound now, you will get 1.5 * 1 us dollors, and if you sell it on expiry you will get 1.49 *1 US dollors. So you will loose in Forward contract. Let me know if my understanding is wrong.

[@saidalabed9417]

@@ishankjain2393 You actually sell british pounds for 1.5 american dollars in both scenarios. That's a property of forward contracts, you lock in a price! Therefore, it is unfavorable for the seller who locks in a selling price at a future date to see the market price at that same future date being higher than the selling price he locked in (the selling price being the forward contract price). Hope this helps.

[@Mengadmire]

@@ishankjain2393 I think the trick is he "short" a forward contract. he short at 1.5 which means he has the right to sell 10000 pounds at 1.5. when exchange rate is 1.49 at end of contract. he can use 14900dollars to get 10000 pounds and sell this pounds with 1.5 rate which is a gain . hope helps ^^

[@359nandu]

actually, above 50-c0 forward is better (not above 50). and bellow 50-c0 option is better in 1.3 . please do correct me if i am wrong.

[@saptarshidas488]

The call option requires a premium payment of c0. Payoff is positive if sT is greater than 50 +c0. The forward contract has no premium payment, so any price above 50 will be profitable.

[@avelinopons3341]

Thanx a lot for your nice videos. When we say "write an option", does it mean we are looking for a buyer (long) of this option (and we are the seller (short)) ? Thanx again

[@MarkMeldrum]

Buyers are on the other side of the transaction - no need to find them. If there is a bid and ask - there is a buyer and seller. Buyer = long, seller = short

[@avelinopons3341]

Got that. It's only that I am not quite sur of the meaning of WRITE an option (question 1.16, 10:21). What would be a synonym in that context ? Best regards Mark ! PS : are you a trader ?

[@djanmhood]

Hi, writing an option, means being short on the option (= selling the option). It is said, one or two times in the John C. Hull's book and one more time in the glossary at the end of the book.

[@TreasureXsu]

What does the price of an option (Say 20 or 30) represent? Under what logic the option price has priced at any given price?

[@MarkMeldrum]

Why not wait until you get to Ch10 to answer that. It would require a whole lesson. It is not something that can be answered in any reasonable amount of time with typing.

[@chantelhoesman7553]

On the 1.16 put problem is that $27 per share and you get paid $4 per share?

[@yassinea7323]

no in a case of $27 per share you get paid 27-30+4 = $1 of profit per share

[@Anu-zq8mu]

What is the meaning of the sentence "entering into a long forward contract"? Does it mean entering into a contract that has more than one year time frame or the buyer's position in the contract ?

[@rayli6489]

Mark, thank you so much for these helpful videos, they are well-structured and easy to understand. But I have one question about put option. Does put option mean buyer of the option has the right to sell or it means buyer of the products has the right to sell? I feel a bit confused

[@MarkMeldrum]

The put gives the holder the right to sell. If they hold the underlying, they sell that for the strike price. If they do not hold the underlying, they just close the option for cash.

[@rayli6489]

Yeah, I get it now. Thanks a lot.

[@rizwanhanif2826]

mostly question you skip why