Chapter 15 (Options Markets) Flashcards

1
Q

American Option

A

Can be exercised on or before its expiration.

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2
Q

At The Money

A

An option where the exercise price equals the asset price.

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3
Q

Call Option

A

The right to buy an asset at a specified exercise price on or before a specified expiration date.

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4
Q

Collar

A

An options strategy that brackets the value of a portfolio between two bounds. They would buy a put at the lower bounds and write a call at a higher price.

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5
Q

Covered Call

A

Writing a call on an asset together with buying the asset.

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6
Q

European Option

A

Can be exercised only at expiration.

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7
Q

Exercise Price

A

Price set for calling (buying) an asset or putting (selling) an asset.

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8
Q

In The Money

A

An option where exercise would generate a positive cash flow.

  • For a call the current price of the stock is above the strike price.
  • For a put that current price of the stock is below the strike price.
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9
Q

Out of The Money

A

An option which, if exercised, would produce a negative cash flow. Out-of-the-money options are therefore never exercised.

  • For a call the current price of the stock is below the strike price.
  • For a put that current price of the stock is above the strike price.
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10
Q

Premium

A

Purchase price of an option.

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11
Q

Protective Put

A

An asset combined with a put option that guarantees minimum proceeds equal to the put’s exercise price.

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12
Q

Put Option

A

The right to sell an asset at a specified exercise price on or before a specified expiration date.

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13
Q

Risk Management

A

Strategies to limit the risk of a portfolio.

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14
Q

Spread

A

A combination of two or more call options or put options on the same asset with differing exercise prices or times to expiration.

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15
Q

Straddle

A

A combination of a call and a put, each with the same exercise price and expiration date.

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16
Q

Strike Price

A

Price set for calling (buying) an asset or putting (selling) an asset.

17
Q

Warrant

A

An option issued by the firm to purchase shares of the firm’s stock.