The Investment Advisor Body of Knowledge + Test Bank

CHAPTER 13 Options, Futures, and Other Derivatives

Investment advisors and consultants must have foundational knowledge of options, futures, and other derivatives. This chapter describes and analyzes various options and futures products and strategies. The author reviews the structures, risk-reward tradeoffs, and potential purposes of numerous trades and positions. The second reading discusses how investors and advisors may integrate these tools to enhance or supplement their strategic or tactical asset allocation strategies.

Part I The Theory and Practice of Investment Management: Asset Allocation, Valuation, Portfolio Construction, and Strategies: Fundamentals of Equity Derivatives

Learning Objectives

• Discuss the four primary roles of derivatives in investment portfolios including: risk management, returns management, cost management, and regulatory management.
• Differentiate between futures and forwards contracts, options, and swaps.
• Describe the differences between listed and over-the-counter (OTC) options.
• Explain the risk and return characteristics of options including: buying and writing call options, buying and writing put options.
• Explain the basic components of an option price including: intrinsic value and time value.
• List and explain the six factors that influence an option price including: spot price of the underlying, strike price, time to expiration of the option, expected price volatility of the underlying over the life of the option, short-term risk-free ...