Brian Lee - Options, Futures & Forwards Flashcards
Options
Contract to buy or sell the underlying stock. Options are derived from value of the underlying stock.
Type 1 - Call (buy or sell)
Type 2 - Put (buy or sell)
Buy is what
Sell is what
Long is buy
Sell is short
Call what?
Put what?
Call up
Put down
Long call - bullish - RIGHT TO BUY
Short call - bearish - OBLIGATED TO SELL
PUT is opposite
Long put - bearish - RIGHT TO SELL
Short put - Bullish - OBLIGATED TO BUY
What is a short call
Sell and bearish on market
What is a long call
Buy and is bullish on market
What is a Long put
Buyer and bearish
What is a short put
Seller and bullish
Option HEDGE strategy, what is it?
Investor already had a stock position. Investor will either protect the stock OR generate income. either or, never both.
Sally is long 100 shares of XYZ @ $50/share. She fears a near term correction but overall remains BULLISH. As an advisor, what would you recommend for income?
In this case, there are two options to match the risk of the price DROPPING.
1 - Short call
2 - Long put
Which one would generate income (instead of protect the stock)?
Buy for what? Sell for what?
Buy to protect, Sell for income
Covered call?
Sell a call (short)
Bill sells a short 100 shares XYZ at $80, what is the risk? How do you hedge against this risk?
Risk is that the stock goes higher, how far, UNLIMITED
This is a short call, so the only options to hedge against this would be a long call or short put. Buy the call or sell the put. If he wants to generate income, he would SELL THE PUT - Short put
3 types derivative products
Future, Forward, Options
Future and forwards are not
Securities and not regulated,
Options are
a security
