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Series 7 > Options > Flashcards

Options Flashcards

(79 cards)

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1
Q

Holder

A

Buyer of a contract

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2
Q

Write

A

Seller of a contract

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3
Q

Buyer of a contract

A

holder, buyer, long

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4
Q

Seller of a contract

A

seller, writer, short

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5
Q

call contract

A

allows the holder to buy a security from the writer at a fixed price

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6
Q

put contract

A

allows the holder to sell a security to the writer at a fixed price at any time during the life of the option.

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7
Q

strike price

A

aka-exercise price. Price at which holder/buyer/long can call or put the contract.

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8
Q

multiplier for stock

A

standard is 100 per unit. 1 starbucks put=100 shares.

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9
Q

Premium

A

price paid to secure a contract

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10
Q

contract exercised

A

holder buys the underlying security at srike price from the contract writer.

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11
Q

contract expires

A

holder of the contract allows the contract to expire and loses premium paid.

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12
Q

contract traded

A

holder sells contract to someone else prior to expiration.

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13
Q

CBOE

A

Chicago Board Options Exchange-premium for contracts is determined on the CBOE floor.

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14
Q

Things that affect the premium on a contract

A

Longer Time=higher premium, volatility of underlying security (more volatile=higher premium), intrinsic value (higher IT=higher premium)

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15
Q

Time premium

A

total value of an out the money contract.

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16
Q

In the money call contract

A

Market price is higher than the strike price

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17
Q

At the money call contract

A

market price is the same as the strike price

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18
Q

out the money call contract

A

market price is lower than the strike price

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19
Q

In the money put contract

A

marker price is lower than the strike price

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20
Q

at the money put contract

A

market price is same as strike price

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21
Q

out the money put contract

A

market price is higher than the strike price

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22
Q

contract at parity

A

when the market premium exactly equals intrinsic value of the option

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23
Q

Higher Dividend rate=

A

lower call premiums, higher put premiums

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24
Q

OCC

A

Options Clearing Corporation-keeps track of each options trade that occurs and keeps records.

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25
higher interest rates=
higher call premiums, lower put premiums
26
opening purchase
holder's initial purchase of the contract
27
closing sale
holder trades the contract to someone else
28
opening sale
writer's initial sale of a contract
29
closing purchase
writer trades the contract to someone else
30
open interest
number of open contracts
31
Bull Strategies
strategies which profit from a rising market. Long Call and Short Put.
32
Bear Strategies
Strategies which profit from falling markets. Short Call and Long Put.
33
Long Call Maximum Gain for holder is
Unlimited
34
Long Call Maximum loss for holder is
Premium Paid for the contract
35
Breakeven point on a long and short call option
strike price + premium paid
36
Long Call
Holder has option to buy stock at a certain price
37
Short Call
Write has obligation to sell stock at a certain price
38
Long stock position
customer owns stock
39
Long stock/Long Put Hedge
To protect stock in falling market
40
Maximum gain of a long stock/long put hedge
unlimited
41
Maximum loss of a long stock/long put hedge
Premium (offset by difference between stock cost and put strike price)
42
Breakeven point of long stock/long put hedge
stock cost+premium
43
short stock/long call hedge
to protect stock in a rising market
44
maximum gain on short stock/long call hedge
short sale price minus premium paid
45
maximum loss on short stock/long call hedge
Premium (offset by difference between stock short sale price and call strike price)
46
breakeven point of short stock/long call hedge
stock sale price-premium paid
47
Long stock/long put position=
the equivalent of a long call
48
Short Stock/Long Call position=
the equivalent of a long put
49
Income strategies are used when the market is
stable
50
Hedging
Protection against a market strategy that a person has taken. Long stock/long put and short stock/long call positions are hedging strategies.
51
Long Stock/Long Put
Buy stock, buy the option to sell the stock at a certain price (hedging against falling market)
52
Short Stock/Long call
Sell stock before buying it, buy the option to buy the stock at a certain price (hedging against rising prices)
53
Income strategies are
Long Stock/Short calls and short stock/short puts
54
Long Stock/Short Call
Buy stock, Write a call for the stock to sell it at a certain market price. Used in a rising market or if out the money contracts are sold.
55
short stock/short put
Sell stock short (without having it), Sell a put to someone so they may be able to sell the stock you have shorted at a specific value. Unlimited loss. Limited gain. Not a very popular market strategy.
56
Straddle
Puchasing a call and a put on the same stock having the same price and expiration. Customer wins if the market moves up or down. Customer loses if the market stays the same.
57
Long Straddle
Long Call and Long Put
58
Long combination
customer buys a call and put with different stroke prices and/or expirations.
59
short combination
customer sells a call and a put on the same security with different strike prices and/or expirations.
60
Define Spread
The purchase and sale of a call or the purchase and sale of a put at different strike prices with different expirations or with both the strike price and expiration being different.
61
What do spreads limit?
Potential Gain and Potential Risk
62
Long Call Spread (bull spread)
Long call premium is higher. Buy a call at lower strike price, sell a call at the higher strike price. Debit spread.
63
Short Call Spread (bear spread)
Short call premium is higher. Sell at the lower strike price and buy at a higher strike price. Credit spread.
64
Long Put Spread (bear spread)
Long put premium is higher. Buys the higher strike price and sells at lower strike price. Debit spread.
65
Short put spread (bull spread)
Short put premium is higher. Sell at the higher strike price and buy at the lower strike price. Credit spread.
66
Calendar Spreads are also called
Time spreads, horizontal spreads.
67
Stock options are traded on the
chicago board options exchange, american stock exchange, pacific stock exchange, philadelphia stock exchange.
68
OCC contract specified contract size
100 shares per contract
69
occ contract specifieid strike price
new contracts issued at prices based on existing market prices at 2 1/2 point interval.
70
occ contract specified premium increments
quoted in pennies at minimum increments of 5 cents under $3 and 10 cents for contracts over $3
71
occ contract specified expiration date
contracts expire on saturday following the third friday of every month at 11:59 eastern standard time.
72
occ contract specifications expiration
contracts can be issued for current trading month (spot) and next trading month (next month).
73
actual maximum contract life
8 months
74
technical maximum contract life
9 months
75
occ contract specified trading hours
9:30 am-4:00 pm eastern standard time.
76
occ contract specified trading cut off
the last day to trade equity options is on the friday prior to expiration at 4pm est (expiration occurs saturday following 3rd friday of month).
77
Exercise cut off
The last day to exercise equity options is on the friday prior to expiration at 5:30 pm est.
78
Options disclosure document
Form that customers receive prior to opening an options account. It has various rules on it.
79
Rules on the options disclosure document
settlement of options trades, maintenance of records, assignment of exercise notices, settlement when exercised, position limits.

Series 7 (3 decks)

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