options

Question 1

When do most options expire?

Answer 1

9 months

Question 2

What are leaps?

Answer 2

Long. term options that last up to three years

Question 3

Two primary types of options contracts?

Answer 3

1. Equity (stock options)
2. Index options

Question 4

Where do options primarily trade?

Answer 4

Chicago Board of Options Exchange

Question 5

What time zone do options trade in?

Answer 5

CT

Question 6

What type of security are options?

Answer 6

Derivative security

Question 7

What defines a derivative security?

Answer 7

The investment value is derived from price changes in in underlying asset

Question 8

Difference between equity options and index options?

Answer 8

Equity options derive their value from price fluctuations of specific stock while index options from an index’s value

Question 9

What three things are options contracts generally helpful for?

Answer 9

1. Speculation
2. Protection
3. Income

Question 10

What is the options premium?

Answer 10

The cost of an option

Question 11

How much is the premium for an option?

Answer 11

At least the difference between the “right” price and the current market price

Question 12

What does “debit” mean in options language?

Answer 12

The money paid to purchase an investment

Question 13

What phrase means an option has intrinsic value?

Answer 13

In the Money

Question 14

What does an option seller hope happens to the option?

Answer 14

It is never exercised

Question 15

What is credit in options language?

Answer 15

Money received by the holder for the option

Question 16

What does “assignment” mean in options language?

Answer 16

When a writer’s option is exercised and they are forced to perform obligation

Question 17

Who is the writer in an option?

Answer 17

The seller

Question 18

When do options specifically expire?

Answer 18

Expire at 11:59pm ET on the third friday of the expiration montha

Question 19

How long can long-term options last?

Answer 19

3 years

Question 20

What four things is the Options Clearing Corporation responsible for?

Answer 20

1. Issuing
2. Standarizing contracts
3. Guaranteeing exercise
4. Clearing house

Question 21

Who always issues options?

Answer 21

The OCC

Question 22

Where is the secondary market of options?

Answer 22

THe Chicago Board Options Exchange

Question 23

What determine premiums in options?

Answer 23

Demand in the market

Question 24

What is the settelement time of the PURCHASE of an options contract?

Answer 24

T+1

Question 25

What is the settlement date of the exercision of an option?

Answer 25

T+2

Question 26

When does the options market close?

Answer 26

4pm ET

Question 27

Till what time of day do options holders have to exercise their contract?

Answer 27

530pm ET

Question 28

What is it called when an investor establishes an options position?

Answer 28

An Opening Transaction

Question 29

What is it called when investors open LONG options positions?

Answer 29

Opening Purchases

Question 30

What is it called when investors open short options positions?

Answer 30

Opening Sales

Question 31

What is a closing sale?

Answer 31

When an investor sells their options contract to another investor for the current premium

Question 32

What is a closing purchase?

Answer 32

When the Seller (shorter) of the option sells the obligation to another investor

Question 33

What are the two components that influence market demand of an options contract?

Answer 33

1. Intrinsic value 2. Time value

Question 34

What is the equation for an option premium?

Answer 34

intrinsic value + time value

Question 35

What does time value represent?

Answer 35

The amount of time left until an option expires

Question 36

How is time related to value of an option?

Answer 36

The longer the time until expiration, the more valuable an option

Question 37

Calls In and Out of the Money rule

Answer 37

1. In the money when market falls 2. Out of the money when market falls

Question 38

Put In and Out of the Money rule

Answer 38

1. In the money when market falls 2. Out of money when market rises

Question 39

What is Call Up?

Answer 39

Intrinsic value when the market price above the strike price

Question 40

What is Put Down?

Answer 40

Intrinsic value when market price is at or above the strike price

Question 41

What time option is worth more, one week or 9 month?

Answer 41

9 Months

Question 42

What is an American style option?

Answer 42

Allows for exercise at any time

Question 43

What is a european style option?

Answer 43

Allows only exercise to occur at expiration

Question 44

What type of options are american style options?

Answer 44

Stock options

Question 45

What type of security are european style options?

Answer 45

Index options

Question 46

Until when can european style be traded?

Answer 46

Up until and even on experation date

Question 47

Define credit spread

Answer 47

when the premium you receive from selling the put is higher than the premium you pay from buying the put

Question 48

What is the break even equation for long calls?

Answer 48

Strike + premium

Question 49

What is the max gain and max loss for long calls?

Answer 49

MG = unlimited ML = Premium

Question 50

Maximum gain and loss for short calls

Answer 50

MG = premium ML = unlimited

Question 51

What 4 things can cover a short call?

Answer 51

1. Long shares 2. Long call 3. Rights or warrants 4. Convertible securities

Question 52

What does the RUT track?

Answer 52

2000 small cap US traded company

Question 53

What does VIX track?

Answer 53

volatility in the market?

Question 54

Are most index options american style or european and what does that mean?

Answer 54

European, can only be exercised at expiration

Question 55

What is the one exception of index options that don't trade european stylle, but american?

Answer 55

The OEX (S&P 100

Question 56

What is delivered in an index option when somethign is exercised?

Answer 56

Cah

Question 57

What is the settlement time for stock option indexes?

Answer 57

T+1 cash settlement

Question 58

Define systematic risk

Answer 58

Risk that applies to a large segment or entire market

Question 59

What type of risk can you not diversify out of?

Answer 59

market