Options and the Future: What Do Markets Think?

1. What is an option contract?

2. What do the terms underlying, expiration date, strike price, put, and call mean?

3. Why are possible losses smaller for a person who owns a put or call option on a stock rather than the stock itself?

4. How can option price data help policymakers determine whether their policy announcements increase or decrease uncertainty among financial market participants?

Source: “Options and the Future: What Do Markets Think?” Ben Craig, Federal Reserve Bank of Cleveland Economic Commentary, October 1, 2002, pp. 1-4.