Options Flashcards
Holder
Buyer of a contract
Write
Seller of a contract
Buyer of a contract
holder, buyer, long
Seller of a contract
seller, writer, short
call contract
allows the holder to buy a security from the writer at a fixed price
put contract
allows the holder to sell a security to the writer at a fixed price at any time during the life of the option.
strike price
aka-exercise price. Price at which holder/buyer/long can call or put the contract.
multiplier for stock
standard is 100 per unit. 1 starbucks put=100 shares.
Premium
price paid to secure a contract
contract exercised
holder buys the underlying security at srike price from the contract writer.
contract expires
holder of the contract allows the contract to expire and loses premium paid.
contract traded
holder sells contract to someone else prior to expiration.
CBOE
Chicago Board Options Exchange-premium for contracts is determined on the CBOE floor.
Things that affect the premium on a contract
Longer Time=higher premium, volatility of underlying security (more volatile=higher premium), intrinsic value (higher IT=higher premium)
Time premium
total value of an out the money contract.
In the money call contract
Market price is higher than the strike price
At the money call contract
market price is the same as the strike price
out the money call contract
market price is lower than the strike price
In the money put contract
marker price is lower than the strike price
at the money put contract
market price is same as strike price
out the money put contract
market price is higher than the strike price
contract at parity
when the market premium exactly equals intrinsic value of the option
Higher Dividend rate=
lower call premiums, higher put premiums
OCC
Options Clearing Corporation-keeps track of each options trade that occurs and keeps records.
higher interest rates=
higher call premiums, lower put premiums
opening purchase
holder’s initial purchase of the contract
closing sale
holder trades the contract to someone else
opening sale
writer’s initial sale of a contract
closing purchase
writer trades the contract to someone else
open interest
number of open contracts
Bull Strategies
strategies which profit from a rising market. Long Call and Short Put.