Understanding Options and Futures

This video covers the following learning objectives:

• Define Calls and Puts

  • Understand what a call option is and when it is used.

  • Understand what a put option is and when it is used.

  • Identify the key features of options (strike price, expiry, premium).

• Explain the Use of Options in Hedging and Speculation

  • Distinguish between using options to hedge portfolio risk and to speculate on price movement.

  • Apply real-world examples of hedging (e.g., portfolio manager buying a put) and speculation (e.g., investor buying a call).

• Analyze the Risk and Reward of Long vs. Short Option Positions

  • Describe the payoff profiles and risks of:

    • Long calls and long puts (limited loss, leverage upside).

    • Short calls and short puts (limited gain, potentially large losses).

  • Understand who typically uses long vs. short strategies and why.

• Understand the Function and Purpose of Futures Contracts

  • Define futures contracts and explain their use in trading and hedging.

  • Identify key distinctions between options and futures (e.g., rights vs. obligations).

• Explain Margining and Settlement in Futures Markets

  • Describe how futures contracts are margined (initial margin, maintenance margin, margin calls).

  • Explain how most futures are settled (daily mark-to-market, offset before expiry).