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Unit 2 > options > Flashcards

options Flashcards

1
Q

When do most options expire?

A

9 months

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2
Q

What are leaps?

A

Long. term options that last up to three years

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3
Q

Two primary types of options contracts?

A
  1. Equity (stock options)
  2. Index options
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4
Q

Where do options primarily trade?

A

Chicago Board of Options Exchange

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5
Q

What time zone do options trade in?

A

CT

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6
Q

What type of security are options?

A

Derivative security

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7
Q

What defines a derivative security?

A

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

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8
Q

Difference between equity options and index options?

A

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

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9
Q

What three things are options contracts generally helpful for?

A
  1. Speculation
  2. Protection
  3. Income
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10
Q

What is the options premium?

A

The cost of an option

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11
Q

How much is the premium for an option?

A

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

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12
Q

What does “debit” mean in options language?

A

The money paid to purchase an investment

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13
Q

What phrase means an option has intrinsic value?

A

In the Money

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14
Q

What does an option seller hope happens to the option?

A

It is never exercised

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15
Q

What is credit in options language?

A

Money received by the holder for the option

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16
Q

What does “assignment” mean in options language?

A

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

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17
Q

Who is the writer in an option?

A

The seller

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18
Q

When do options specifically expire?

A

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

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19
Q

How long can long-term options last?

A

3 years

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20
Q

What four things is the Options Clearing Corporation responsible for?

A
  1. Issuing
  2. Standarizing contracts
  3. Guaranteeing exercise
  4. Clearing house
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21
Q

Who always issues options?

A

The OCC

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22
Q

Where is the secondary market of options?

A

THe Chicago Board Options Exchange

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23
Q

What determine premiums in options?

A

Demand in the market

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24
Q

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

A

T+1

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25
Q

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

A

T+2

26
Q

When does the options market close?

A

4pm ET

27
Q

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

A

530pm ET

28
Q

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

A

An Opening Transaction

29
Q

What is it called when investors open LONG options positions?

A

Opening Purchases

30
Q

What is it called when investors open short options positions?

A

Opening Sales

31
Q

What is a closing sale?

A

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

32
Q

What is a closing purchase?

A

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

33
Q

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

A
  1. Intrinsic value
  2. Time value
34
Q

What is the equation for an option premium?

A

intrinsic value + time value

35
Q

What does time value represent?

A

The amount of time left until an option expires

36
Q

How is time related to value of an option?

A

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

37
Q

Calls In and Out of the Money rule

A
  1. In the money when market falls
  2. Out of the money when market falls
38
Q

Put In and Out of the Money rule

A
  1. In the money when market falls
  2. Out of money when market rises
39
Q

What is Call Up?

A

Intrinsic value when the market price above the strike price

40
Q

What is Put Down?

A

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

41
Q

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

A

9 Months

42
Q

What is an American style option?

A

Allows for exercise at any time

43
Q

What is a european style option?

A

Allows only exercise to occur at expiration

44
Q

What type of options are american style options?

A

Stock options

45
Q

What type of security are european style options?

A

Index options

46
Q

Until when can european style be traded?

A

Up until and even on experation date

47
Q

Define credit spread

A

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

48
Q

What is the break even equation for long calls?

A

Strike + premium

49
Q

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

A

MG = unlimited
ML = Premium

50
Q

Maximum gain and loss for short calls

A

MG = premium
ML = unlimited

51
Q

What 4 things can cover a short call?

A
  1. Long shares
  2. Long call
  3. Rights or warrants
  4. Convertible securities
52
Q

What does the RUT track?

A

2000 small cap US traded company

53
Q

What does VIX track?

A

volatility in the market?

54
Q

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

A

European, can only be exercised at expiration

55
Q

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

A

The OEX (S&P 100

56
Q

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

A

Cah

57
Q

What is the settlement time for stock option indexes?

A

T+1 cash settlement

58
Q

Define systematic risk

A

Risk that applies to a large segment or entire market

59
Q

What type of risk can you not diversify out of?

A

market

60
Q
A

Unit 2 (18 decks)

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