Options Markets (FRM Part 1 2023 – Book 3 – Chapter 12)

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After completing this reading, you should be able to:

Describe the various types and uses of options; define moneyness.
Explain the payoff function and calculate the profit and loss from an options position.
Explain the specification of exchange-traded stock option contracts, including that of nonstandard products.
Explain how dividends and stock splits can impact the terms of a stock option.
Describe the application of commissions, margin requirements, and exercise procedures to exchange-traded options, and explain the trading characteristics of these options.
Define and describe warrants, convertible bonds, and employee stock options.