Formulas: Series 7 Flashcards
Calculation of a Stock-split?
Split ratio 2/1 times number of shares given 100/1 = new number of shares.
2/1 X 100/1 = 200 shares
Value of shares after split = new number of shares (i.e. 200)
What is a Spread?
A long and a Short position in 2 Call contracts or 2 Put contracts on the same stock BUT with different expiration months and/or different strike prices.
What is a Call spread?
Options positions in a Long and a Short Call, having different expiration months and/or different Strike Prices.
What is a Bull spread?
Establishing 2 Calls, one Long and one Short, both with different expiration months and/or different strike prices.
What is a Bear spread?
Establishing 2 Puts, one Long and one Short, both with different expiration months and/or different strike prices.
When does an investor putting on a Bull spread profit?
from a RISE in the market price of the stock.
When does an investor putting on a Bear spread profit?
Will profit from a DECLINE in the market price of the stock.
Long 1 ABC Oct 60 Call
Short 1 ABC Oct 50 Call
Is this a Bear or a Bull spread?
Bull spread. (How do you know? Because it uses Calls as the options.
Long 1 ABC April 30 Put
Short 1 ABC April 25 Put
Is this a Bear or a Bull spread?
Bear spread. (How do you know? Because it uses Puts as the options.
How do you calculate the breakeven point of a Bullish Debit Spread?
the lower strike (purchased) plus the net debit (total paid for the spread).
How do you calculate the breakeven point of a Bearish (put) debit spreads?
the higher strike (purchased) and subtracting the net debit (total for the spread).
What class of Options make up a Credit spread?
Bear Call and Bull Put
What class of Options make up a Debit Spread?
Bear Put and Bull Call
What does it mean in Options to Assign in an Option?
When an option is exercised, the transaction is Assigned to the seller of the option. Technically, he is assigned a call notice.
