Theres two questions below to be answered

1. Give a good definition of a "put option" and give a working example of how you could lose or gain from a put option.

A put option is a contract between two parties where the buyer has a right but not the obligation to sell a certain amount of underlying security at a price at a specified period. The predetermined price at this stage is called the stock price. According to Wan and Chen (2019), this type of option is traded in terms of bonds, stocks, currencies, goods, indexes and futures. Some of the factors that affect the value of put option are price of the underlying asset, interest rates, option strike price, volatility and time of expiry. For instance, a put option gains its value when the price of the underlying assets and interest rates decline while the volatility if the asset price rise (Wan & Chen, 2019). On the other hand, its value declines with an increase in the price of the underlying asset and its interest rates while the volatility of the asset price declines correspondingly.  Therefore, investors analyses these factors whenever they make investment decisions concerning options. This means that an investor can either gain profits or make losses in return whenever they invest in this type of option. Generally, put options are profitable whenever the stock price is lower than the strike price at expiration. For example, if a trader invests in a put option priced $0.85 with a strike stock price of $30 and a strike price of $36 at expiration, then the option is worth $6 at expiration and the investor makes a profit of $5.15. in the same way, if the investor buys a stock with the stock price being higher than the strike price, he/she will run at a loss.

2. Give a definition and working example of how a Futures Contract (any futures of your choice) can make or lose an investor money?

Futures are financial contracts that gives the obligation to an individual to either buy or sell an asset at specified time at a set price. In this case, the seller must sell, or the buyer must purchase the underlying asset with the set price without relying on the current market price of the asset before decay (Augustin, Rubtsov & Shin, 2020). Currency futures is one of the commonly used type of features. Here, a buyer or a seller has an obligation to buy or sell a currency at an agreed price before the date of expiry. This type of futures is very essential whenever one needs to hedge risks associated with receiving finds in foreign currency. Most importantly, the determination of the price of a currency is done at the initiation stage of the trade. Investors often use currency futures to gain profits. However, at some point, an investor may incur losses at the end of the trade. For example, an investor can buy EURO at 1.2 in a U.S foreign exchange. This means that the investor is willing to buy the currency at the cost of $1.2. At the expiry of the contract, the 125,000 Euros at $1.2. on the other hand, the seller of this currency will need to deliver the EUROS and obtain dollars in return. The trading account of the investor shows either a loss or gain at the expiration of the trade. For instance, in case the price of EURO rises to $1.21 or declines to 1.19, the investor will make a loss or gain $1,250 on the contract depending on the side of the trade he/she is in.

Question 1 Response 1

hello, generally, you gave a working definition of a put option. also, I was satisfied with your example on how the put option works when it comes to investing in it. I would add that put option can be traded in many forms of underlying assets including indexes, commodities, futures, currencies and stocks, among others.

Question 1 Response 2

hello, I agree with you on the definition of a put and it was good for you mentioning the concept of predetermined price and a specified period of asset purchase. moreover, you gave a moving example or how an investor can lose of earn money through put option without forgetting factors that affect the value of a put option.

Question 1 Response 3

hello, your definition of a put and the explanation of how it works are very satisfactory. in fact, you emphasized on the effect of the underlying stock price on the put and value. time of decay, interest rates and strike prices also matter in this case. also, it is necessary to note that put options can serve as a risk management strategy for investors

Question 2 Response 1

hello, I am moved by your heavy definition of futures and the explanation of its components. I am glad you chose currency futures as an example in this paper since it is one of my favorite. it is therefore good to acknowledge that mostly the speculators and risk hedgers use his form of futures to access financial gains.

Question 2 Response 2

hello, I agree with you that Futures are financial contracts that gives the obligation to an individual to either buy or sell an asset at specified time at a set price. also, your explanation of how futures work is fascinating. it would be more significant to highlight commodity, stock, index and currency futures as primary types of futures contract.

Question 2 Response 3

hello, I am glad that you mentioned all the components of defining futures which include the obligation to buy and sell, predetermined period and the set price of the underlying asset at that time. I also appreciate the fact that you profoundly explored how currency futures operates to the extent of giving a statistical information.