Chapter 10 Mechanics of Options Markets

We introduced options in Chapter 1. This chapter explains how options markets are organized, what terminology is used, how the contracts are traded, how margin requirements are set, and so on. Later chapters will examine such topics as trading strategies involving options, the determination of option prices, and the ways in which portfolios of options can be hedged. This chapter is concerned primarily with stock options. It also presents some introductory material on currency options, index options, and futures options. More details concerning these instruments can be found in Chapters 17 and 18.

Options are fundamentally different from forward and futures contracts. An option gives the holder of the ...

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