Options Flashcards
In the Money
The holder is profiting from exercising the option
Out the Money
The holder is losing from exercising the option
At the Money
Option Price = Asset/Stock Price
What would be the In the Money Scenario for a Call Option Holder
St > K
What would be the In the Money Scenario for a Put Option Holder
St < K
What would be the Out the Money Scenario for a Call Option Holder
St < K
What would be the Out the Money Scenario for a Put Option Holder
St > K
Asian Option
Payoff depends on the average market price over the option’s period of time
Lookback Options
Depend on the min or the max market price of the duration of the asset’s life.
Digital Options
Binary(met or does not mean the condition).Fixed payoff if the condition is met ( i.e.if strike > option , $10 dollars )
CDCC Canadia Derivatives Clearing Corporation
Middle Man in between writers and holders. Make sure people disclose margins and perform under the contract.
What is a Protective Put theory
Too afraid to invest and bear losses, but still want to invest.
- Buy a stock
- Buy a put option ( wright to sell ), will exercise if St < K.
Covered Call. What is the objective of this strategy ? What is the payoff ?
Option writters are risky and are naked. Covered means the person bought the stock before writting the document that makes it sell a stock. 1. Buy a stock 2. Write/sell a call.
Betting on ?
Strategy to follow trough with selling the asset at price X. X is a price they were willing to sell it for. SIMUATING selling a normal share to an individual.
If the person did the call without being it covered it would have to buy the asset in the market at price St ( supper expensive ) ans take the loss from selling it a lower price.
Straddle
Doudle D => Doubt => Does not know where the stock is going to go so shots everywhere.
1. Buy a Long
2. Buy a Call
=> Only exercices the one it will give it profit.
Spreads
twins formation = spermatozoide spread into two resulting in two equal human beings.
Combination of two options that have different strike price or different maturity
What are the 2 types of spreads ?
Bull and Bear
Using Calls
Describe/define Bulling Spread Strategy. What is the optimal sceraio you are hoping for ?
- Betting on market going up
a) Buy a Call Option(go short) with a low strike price. K1
b) Write a Call Option with a high strike price. K2.
Betting on Strike Price going over K2
What will be the payoff of a Bulling spread with K1 < St < k2
St - K1
What will be the payoff of a Bulling Spread when St > K2
K2 - K1
What are the long and short posistions ?
Long means you are the holder of the option (Long = Tall = Power => decide when to exercise)
Writters need to be consise and direct. Write short sentences. Short = writter of the option
Describe/define Bearing Spread Strategy
- Write a call with low K1.
2. Buy/Long a call with a high K2
What are you hoping for on a bearing strategy?
Fo the Stock price to fall below K1
Which scenario contains the breakeven point of a bulling?
St > K1
Which scenario contains the breakeven point of a bulling?
St > K2
What is a collar Strategy
Collar around the whole neck => protecting against losses below X1.
Protective Put and Covered Call.
- Buy the Option at So
- Buy the Put X1
- Write the Call at X2
