Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

20% off ACCA & CIMA Books

OpenTuition recommends the new interactive BPP books for September 2025 exams.
Get your discount code >>

Reader Interactions

Comments

  1. I am very confused by the entire short call/ long call/ short put/ long put story.

    I am also when one is used and when the other.

    For instance going long call (sell the option to buy) helps if you expect your asset to decrease (or your liability to increase). But then again so does a short put (buy the option to sell). So when would you use one and when the other? Same story with short call and long put.

    Also why would anyone go long put when they are facing unlimited risk, but only limited gain? I guess that the concept of selling the right to sell an asset you don’t have to hedge a completely different transaction may be confusing to several persons 馃槢

    Perhaps this is the wrong place to ask the question, but not sure where to include it. Thanks in advance John and thank you for your great lectures!

    • In future you must ask this sort of question in the Ask the Tutor Forum, and not as a comment on a lecture.

      ‘Short’ dealings in anything are when you are selling an asset now with the intention of buying back later (so expecting the price to fall). ‘Long’ dealings are buying an asset now with the intention of selling later (so expecting the price to rise).

      The idea of selling an asset that you do not have may be a confusing concept, but it is explained in earlier lectures in full (and in Paper PM (old F9) lectures as well).

      As far as unlimited risk is concerned, the financial manager is only ever using futures, options etc. to hedge against the existing risk of a transaction. The risk of the futures. options deal ‘cancels’ the risk on the transaction.

      I hope that you have been watching the lectures in order, and not just watching ones at random 馃檪

  4. While I know that this is not the place I must still comment and personally thank you Mr. Moffat. I just became an affiliate, with 0 fails and I think that you, sir, are a wonderful lecturer and I have gained a lot from your lectures. Please know that your work is duly appreciated. All the best.

  8. @ Sir John, Thank you for great lecture.
    I want to ask about Futures price. e.g if you say futures price is 92,
    1)is this amount in $ or cents? & that 92 is per contract? (e.g i want to buy two future contracts of $1m at exercise price of 92 each)
    2)what will be the difference if i am borrowing in currency other than dollars say yen, does futures price will be derived from the same formula (100 – x%)?
    3) Why we always sell futures when we are borrowing and buy futures when depositing? i like to understand the logic behind this?
    Thank you once again!

    • A future price of 92 is not in any currency – it is just another way of quoting 8% interest (100 – 8), and if you borrow money and are quoted a rate of interest then the % itself is not in any currency.

      The whole purpose of using futures (as with foreign currency futures as well) is for the gain or loss on the futures deal to ‘cancel’ out the loss of gain on the transaction itself.
      If you are borrowing money and the interest goes up, then you are losing out on the loan itself. However if the interest rate goes up, the futures price will fall. So you will make a compensating gain on the futures by selling now, and then buying back later when the price is lower. Vice versa if you are depositing money.

      • Thank you Sir,
        can we also open our position by buying futures instead of selling futures when borrowing or it has to be selling futures first and buying later to close the position?

      • You can do, but it would be stupid thing to do! Because if interest rate go up you would be paying more interest on the borrowing, and at the same time you would make a loss on the futures.
        The whole point in trading in futures is for the gain or loss on them to ‘cancel’ the gain or loss on the borrowing itself.

        (I am not sure why you have posted a comment about futures under a lecture on options)

  11. Please can someone help me?
    From the Link below

    https://www.accaglobal.com/en/student/acca-qual-student-journey/qual-resource/acca-qualification/p4/past-exam-papers.html

    Global Pilot paper – from June 2013 exams
    Question 2 – Alecto Co.

    In the solution, when calculating the profit/loss of the futures deals for both interest rate futures and options on interest rate futures, the calculation was not divided by 400 as explained by the tutor here, can you please explain why this was the case?
    Thanks

Leave a Reply