Q

Question 8 only.

Identify and explain the ky leatuietul ll Op contract. What is the difference between a put option and a call option? What is the difference between an American option and a European option? Why does an option writer need to post margin? Identify two important ways in which an exchange-traded option differs from a typical OTC option. a. What are the main ways in which an option differs from a futures contract? b. Why are options and futures labeled derivative securities? Explain how this statement can be true: "A long call position offers potentially unlimited gains, if the underlying asset's price rises, but a fixed, maximum loss if the underlying asset's price drops to zero. . 8. Suppose a call option on a stock has an exercise price of 970 and a cost of $2, and suppose you buy the call. Identify the profit to your investment, at the call's expiration, for each of these values of the underlying stock: $25, $70, $100, $400. 9. Consider again the situation in question 8. Suppose you had sold the call option. What would your profit be, at expiration, for each of the stock prices? 10. Explain why you agree or disagree with this state- ment: "Buying a put is just like short selling the underlying asset. You gain the same th ing from luing asset's price falls