Ch 13-14 Flashcards
A ____ option gives the owner the right to buy the underlying security from the writer at a fixed price.
Call
A ___ option gives the owner the right to sell the underlying security to the writer at a fixed price.
Put
Calls are ______ if market price is above strike price.
Calls are ______ if market price is below strike price.
In-the-money
out-of-the-money
Puts are ____ if market price is below strike price.
Puts are ____ if market price is above strike price.
in-the-money
out-of-the-money
Premium - Intrinsic Value =
Time Value
Listed options are guaranteed by the ___ which protects investors from contra party risk.
OCC (options clearing corporation)
The option expiration triggers the maximum _____ for writers.
The option expiration triggers the maximum _____ for buyers.
Gain
Loss
Premium received is the maximum _____ for a writer.
Gain
Buying Calls: Maximum Gain= Unlimited Maximum Loss= premium paid Breakeven= strike + premium paid Selling Calls: Maximum Gain= premium received Maximum Loss= unlimited Breakeven= strike + premium received
Buying Puts: Maximum Gain= strike - premium paid Maximum Loss= premium paid Breakeven= strike - premium paid Selling Puts: Maximum Gain= premium received Maximim Loss= strike - premium received Breakeven= strike - premium received
A _____ _____ is purchased as an insurance policy against a possible decline in an investor’s long stock position.
protective put
A _____ ____ is purchased as an insurance policy against a possible increase in an investor’s short stock position.
protective call
How do you determine Breakeven in put spreads?
Breakeven = higher strike + difference in premiums
How do you determine break even for call spreads?
Breakeven = lower strike + difference in premiums
_____ ______ writing (long stock+short call) allows investors to increase the return on their portfolios and also to partially hedge their stocks against falling prices.
Covered call
Net debit spreads occur when an investor buys an option with a ____ premium and sells and option with a ____ premium.
Higher
Lower
