IF Topic 1

  1. Option Contract
    One party buys from the other party the right to buy (or sell) something in the future at the price agreed today: the option seller (writer) has commitment to deliver if called on to do so

    • - a call is the right to buy an underlying asset
    • -a put is the right to sell an underlying asset
    • -an AMerican option can be exercised at any time prior to its expirary dates
    • -a European options can be exercised at expirary
  2. Foward Contract
    • A commitment agreed to privately by two
    • parties to buy and sell something on a stated future date at a price agreed
    • today.

    • A forward has two parties: a seller who
    • agrees to deliver a set quantity on a given date at a fixed price and a buyer
    • who agrees to take delivery
  3. Futures Contract
    • Like a forward contract, a futures contract
    • is a commitment; unlike a forward contract, a futures
    • contract is designed by, and traded on, an organised exchange.

    • Examples: interest rate futures, currency futures, share
    • price index futures, commodity futures

    • Futures contracts are standardised, specifying:
    • - the contract unit (e.g. the share price index)
    • - delivery months (commonly four per calendar year,
    • e.g. March, June, September and December) for when each contract matures
    • -quotation
    • -delivery details (usually cash settlement)
    • - Futures in the FX market are far less important than forwards and options
Card Set
IF Topic 1
Fowards, Futures, Swaps