Derivative Securities: Rapid Fire

What this video covers

• Why the option buyer has a right and the seller (writer) has an obligation, and how the exam reverses these roles to build wrong answers
• How to identify the four option positions (long call, short call, long put, short put) from an investor's market view and quote their maximum gain and maximum loss
• Why a short uncovered (naked) call carries unlimited loss potential while a covered call caps risk because the writer already owns the underlying stock
• The futures versus forwards distinction: exchange-traded and standardized versus over-the-counter (OTC) and customizable, and why counterparty risk is minimal for futures thanks to the clearinghouse
• How futures margin works as a good-faith performance deposit, and why a margin call requires variation margin to restore the account all the way to the initial margin level, not merely to maintenance
• Why mark-to-market daily settlement in futures prevents losses from silently accumulating, compared to forwards that settle only at expiration
• Why leverage is framed as both a benefit and a risk on the Series 66, and why derivatives are generally unsuitable for conservative, risk-averse investors seeking capital preservation