Costs

Select an option above to see an explanation here.

A) Transaction fees are the costs of buying or selling a derivative security. B) Margin requirements are the amount of collateral required to open and maintain a derivative position. C) Dividend payments are not a cost associated with trading derivative securities, as they are related to the underlying asset rather than the derivative itself. D) Maintenance margin is the minimum amount of equity that must be maintained in a margin account to avoid a margin call.

Select an option above to see an explanation here.

A) Purchasing a stock with cash does not involve leverage, as no borrowed funds are used. B) Selling a stock short involves borrowing shares to sell, but it is not an example of leverage in the context of derivative securities. C) Buying a call option on a stock is an example of leverage, as the investor can profit from an increase in the stock price without purchasing the underlying shares. D) Receiving a dividend payment is not an example of leverage, as it is a return on investment rather than a means of increasing potential returns through borrowed funds.

Select an option above to see an explanation here.

A) Premium is the cost paid to purchase an option contract. B) Margin requirements are the minimum amount of collateral required to hold a position in a derivative security. C) Commissions are fees paid to brokers for executing trades. D) Dividends are not a cost associated with derivative securities, as they are paid by the underlying asset's issuer to its shareholders.