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Series 7 > Options > Flashcards

Options Flashcards

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
Q

higher interest rates=

A

higher call premiums, lower put premiums

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26
Q

opening purchase

A

holder’s initial purchase of the contract

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27
Q

closing sale

A

holder trades the contract to someone else

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28
Q

opening sale

A

writer’s initial sale of a contract

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29
Q

closing purchase

A

writer trades the contract to someone else

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30
Q

open interest

A

number of open contracts

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31
Q

Bull Strategies

A

strategies which profit from a rising market. Long Call and Short Put.

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32
Q

Bear Strategies

A

Strategies which profit from falling markets. Short Call and Long Put.

33
Q

Long Call Maximum Gain for holder is

34
Q

Long Call Maximum loss for holder is

A

Premium Paid for the contract

35
Q

Breakeven point on a long and short call option

A

strike price + premium paid

36
Q

Long Call

A

Holder has option to buy stock at a certain price

37
Q

Short Call

A

Write has obligation to sell stock at a certain price

38
Q

Long stock position

A

customer owns stock

39
Q

Long stock/Long Put Hedge

A

To protect stock in falling market

40
Q

Maximum gain of a long stock/long put hedge

41
Q

Maximum loss of a long stock/long put hedge

A

Premium (offset by difference between stock cost and put strike price)

42
Q

Breakeven point of long stock/long put hedge

A

stock cost+premium

43
Q

short stock/long call hedge

A

to protect stock in a rising market

44
Q

maximum gain on short stock/long call hedge

A

short sale price minus premium paid

45
Q

maximum loss on short stock/long call hedge

A

Premium (offset by difference between stock short sale price and call strike price)

46
Q

breakeven point of short stock/long call hedge

A

stock sale price-premium paid

47
Q

Long stock/long put position=

A

the equivalent of a long call

48
Q

Short Stock/Long Call position=

A

the equivalent of a long put

49
Q

Income strategies are used when the market is

50
Q

Hedging

A

Protection against a market strategy that a person has taken. Long stock/long put and short stock/long call positions are hedging strategies.

51
Q

Long Stock/Long Put

A

Buy stock, buy the option to sell the stock at a certain price (hedging against falling market)

52
Q

Short Stock/Long call

A

Sell stock before buying it, buy the option to buy the stock at a certain price (hedging against rising prices)

53
Q

Income strategies are

A

Long Stock/Short calls and short stock/short puts

54
Q

Long Stock/Short Call

A

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
Q

short stock/short put

A

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
Q

Straddle

A

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
Q

Long Straddle

A

Long Call and Long Put

58
Q

Long combination

A

customer buys a call and put with different stroke prices and/or expirations.

59
Q

short combination

A

customer sells a call and a put on the same security with different strike prices and/or expirations.

60
Q

Define Spread

A

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
Q

What do spreads limit?

A

Potential Gain and Potential Risk

62
Q

Long Call Spread (bull spread)

A

Long call premium is higher. Buy a call at lower strike price, sell a call at the higher strike price. Debit spread.

63
Q

Short Call Spread (bear spread)

A

Short call premium is higher. Sell at the lower strike price and buy at a higher strike price. Credit spread.

64
Q

Long Put Spread (bear spread)

A

Long put premium is higher. Buys the higher strike price and sells at lower strike price. Debit spread.

65
Q

Short put spread (bull spread)

A

Short put premium is higher. Sell at the higher strike price and buy at the lower strike price. Credit spread.

66
Q

Calendar Spreads are also called

A

Time spreads, horizontal spreads.

67
Q

Stock options are traded on the

A

chicago board options exchange, american stock exchange, pacific stock exchange, philadelphia stock exchange.

68
Q

OCC contract specified contract size

A

100 shares per contract

69
Q

occ contract specifieid strike price

A

new contracts issued at prices based on existing market prices at 2 1/2 point interval.

70
Q

occ contract specified premium increments

A

quoted in pennies at minimum increments of 5 cents under $3 and 10 cents for contracts over $3

71
Q

occ contract specified expiration date

A

contracts expire on saturday following the third friday of every month at 11:59 eastern standard time.

72
Q

occ contract specifications expiration

A

contracts can be issued for current trading month (spot) and next trading month (next month).

73
Q

actual maximum contract life

74
Q

technical maximum contract life

75
Q

occ contract specified trading hours

A

9:30 am-4:00 pm eastern standard time.

76
Q

occ contract specified trading cut off

A

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
Q

Exercise cut off

A

The last day to exercise equity options is on the friday prior to expiration at 5:30 pm est.

78
Q

Options disclosure document

A

Form that customers receive prior to opening an options account. It has various rules on it.

79
Q

Rules on the options disclosure document

A

settlement of options trades, maintenance of records, assignment of exercise notices, settlement when exercised, position limits.

Series 7 (3 decks)

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