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Study Guide for Final
Study Guide for Final

... detail? Does your answer to the previous question depend upon whether you have a long or short position? Explain. Why do speculators and hedgers have different position limits? How does open interest differ from volume? When a contract trades does the open interest increase, decrease, or not change? ...
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... Production decision rule: The seller will produce one more unit of a good or service if the price for which it can be sold exceeds or equals its marginal cost. A supply curve is a marginal cost curve. Producer surplus: The price of a good minus the opportunity cost of producing it. In other words, p ...
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Moneyness

In finance, moneyness is the relative position of the current price (or future price) of an underlying asset (e.g., a stock) with respect to the strike price of a derivative, most commonly a call option or a put option. Moneyness is firstly a three-fold classification: if the derivative would make money if it were to expire today, it is said to be in the money, while if it would not make money it is said to be out of the money, and if the current price and strike price are equal, it is said to be at the money. There are two slightly different definitions, according to whether one uses the current price (spot) or future price (forward), specified as ""at the money spot"" or ""at the money forward"", etc.This rough classification can be quantified by various definitions to express the moneyness as a number, measuring how far the asset is in the money or out of the money with respect to the strike – or conversely how far a strike is in or out of the money with respect to the spot (or forward) price of the asset. This quantified notion of moneyness is most importantly used in defining the relative volatility surface: the implied volatility in terms of moneyness, rather than absolute price. The most basic of these measures is simple moneyness, which is the ratio of spot (or forward) to strike, or the reciprocal, depending on convention. A particularly important measure of moneyness is the likelihood that the derivative will expire in the money, in the risk-neutral measure. It can be measured in percentage probability of expiring in the money, which is the forward value of a binary call option with the given strike,and is equal to the auxiliary N(d2) term in the Black–Scholes formula. This can also be measured in standard deviations, measuring how far above or below the strike price the current price is, in terms of volatility; this quantity is given by d2. Another closely related measure of moneyness is the Delta of a call or put option, which is often used by traders but actually equals N(d1), not N(d2), and there are others, with convention depending on market.
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