Derivative Characteristics: Rapid Fire

What this video covers

• Why option premium equals intrinsic value plus time value, and how time decay (theta) erodes the buyer's position while rewarding the seller
• When a protective put is suitable (downside insurance with unlimited upside preserved) versus when a covered call is appropriate (premium income with upside capped)
• Why index puts with their $100 multiplier hedge systematic risk for diversified portfolios
• The maximum gain and maximum loss profiles for long calls, long puts, short naked calls, and short naked puts
• Why naked call writing carries unlimited risk while naked put loss is limited to strike minus premium
• The distinction between futures (standardized, clearinghouse, no counterparty risk) and forwards (customized, private, counterparty risk exists)
• How futures margin works as a performance bond (not a loan), and why variation margin must restore the account to initial margin level