financing

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●  Long hedge​: Involves the purchase of a futures contract to guard against a price increase
●  Short hedge​: Involves the sale of a futures contract to protect against a price decline in
commodities or financial securities
●  Perfect hedge​: Occurs when gain/loss on hedge transaction exactly offsets loss/gain on
unhedged position
Speculation​: ​Buyingafuturescontract(today)isoftenreferredtoas“goinglong,”orestablishingalong position
Recall: Each futures contract has an expiration date
▪ A new futures price is established every day before expiration.
▪ If this ​new price is higher ​than the previous day’s price, the holder of a long futures contract
position profits​ ​from this futures price increase
▪ If this ​new price is lower ​than the previous day’s price, the holder of a long futures contract position loses ​from this futures price decrease.
3. OPTION
Definition​: ​An option is the right to either buy or sell something at a set price, within a set period of time. You can exercise an option if you wish, but you do not have to do so.The right to buy is a ​call option​. The right to sell is a ​put option. Goals​:
▪  Understand option terminology
▪  Be able to determine option payoffs and profits
▪  Understand the major determinants of option prices
Terminology
Exercising the Option​: The act of buying or selling the underlying asset
●  ​Strike/Exercise Price (Precio de ejercicio - E): Fixed price in the option contract at which the
holder can buy or sell the underlying asset
Expiry/Expiration Date (Vencimiento):​The maturity date of the option
●  Writer/grantor (Vendedor)​: Institution that sells the option ​Υ Holder (Comprador):
Institution/investor that’s buys the option.

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