The Value of a Futures Option Is Defined as

question 106

Multiple Choice

The value of a futures option is defined as

• A) the difference between the option's strike price and its original purchase price.
• B) the difference between the option's strike price and the market price of the underlying futures contract.
• C) the strike price of the option multiplied by the mark-to-the-market value.
• D) the mark-to-the-market value divided by the strike price.

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Definitions:

Standard Deviation

A statistical measure of the dispersion or variability of a set of data points, commonly used in finance to assess the volatility of an investment's returns.

Market Return

The total return on investment in the stock market, including both capital gains and dividends.

Risk Free Rate

An interest rate at which an investor expects to earn on an investment with zero risk.

Expected Constant Growth Rate

The steady rate at which a company’s dividends or earnings are anticipated to grow indefinitely.