Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Special Topic > OPTIONS > Flashcards

OPTIONS Flashcards

1
Q

A type of derivative contract which gives the option buyer the right but not the obligation to buy or sell an underlying asset

A

option

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

is one example of a derivative security

A

option

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

a security that derives its value from another asset

A

derivative security

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

The asset from which a derivative security obtains its value

A

Underlying asset

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Types of option

A

call option
put option

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

It grants the right to purchase or buy a share of stock at a fix price on or before a certain date

A

call option

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

It grants the right to sell a share of stock at a fixed price on or before a certain date

A

put option

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

The price at which an option holder can buy or sell the underlying asset

A

Strike price or exercise price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

The date on which the right to buy or sell the underlying asset expires

A

Expiration date

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

This rise in value as the underlying stock price goes down

A

put options

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

This increase in value as the underlying stock price goes up

A

call option

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

The buyer can exercise the option at any time before the expiry of the option contract

A

American option

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

An option that grants the right to buy an underlying asset on or before the expiration date

A

American call option

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

The buyer can exercise the option only on the date of expiration of the option

A

European option

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

An option that grants the right to buy the underlying asset only on the expiration date

A

European call option

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

To own an option or another security

A

Long position

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

To sell an option or another security

A

Short position

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Pay (receive) the strike price and buy (sell) the underlying asset

A

Exercise the option

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

The market price of the option

A

Option premium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

These do not usually occur in face-to-face transactions between two parties

A

Option trades

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Option trades are either on an

A

An exchange or over-the-counter market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

It may serve as a guarantor fulfilling the terms of an option contract if one party defaults

A

Option exchange

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

The risk that the counterparty in an over-the-counter option transactions will default on its obligation

A

Counterparty risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

An agreement between two parties in which one party pays the other party the cash value of its action precision rather than forcing a to exercise the option by buying or selling the underlying asset

A

Cash settlement

25
Q

Moneyness of an option

A

In the money
out-of-the-money
at the money

26
Q

Call option is in the money when

A

When the stock price is greater than the strike price

27
Q

Put option is in the money when

A

When the stock price is less than the strike price

28
Q

Call option is out-of-the-money when

A

When the stock price is less than the strike price

29
Q

Put option is out-of-the-money when

A

When the stock price is greater than the strike price

30
Q

Call option and put option is at the money when

A

When the stock price equals the strike price

31
Q

The prophet that an investor makes from exercising and option ignoring transactions costs and the option premium

A

Intrinsic value

32
Q

The difference between an options market price and its intrinsic value

A

Time value

33
Q

The price an investor would be willing to pay for the option the instant before it expires

A

Options payoff

34
Q

The value received from exercising and option on the expiration date ignoring the initial premium required to purchase the option

A

Options payoff

35
Q

A diagram that shows how the expiration date of from an option or a portfolio varies as the underlying asset price changes

A

Payoff diagrams

36
Q

Graphs that illustrates an options payoff as a function of the underlying stock price

A

Payoff diagrams

37
Q

These are extremely useful tools for understanding how options behave

A

payoff diagrams

38
Q

The difference between the pay of receive when the option expires and the premium paid to acquire the option

A

Net payoff

39
Q

To buy or to sell an option without a simultaneous position in the underlying asset

A

Naked option position

40
Q

Occurs when an investor buys or sell an option on a stock without already owning the underlying stock

A

Naked call option

41
Q

Occurs when a trader buys or sell an option without owning the underlying stock

A

Naked put option

42
Q

A portfolio containing a share of stock and a put option on that stuff

A

Protective put

43
Q

A relationship that links the market prices of stock risk-free bonds call options and put options

A

Put call parity

44
Q

A model that uses the principle of no-arbitrage to calculate call and put values

A

Binomial option pricing model

45
Q

The ratio of calls to shares in a perfectly hedge portfolio as or as the ratios of the shares to call

A

hedge ratio

46
Q

Can be modified to allow for multiple stock price movements throughout the life of an option

A

Binomial model

47
Q

The author of the black in scholes model

A

myron scholes and fisher black

48
Q

A normal distribution with a mean of 0 and a standard deviation of 1

A

Standard normal distribution

49
Q

It is essentially call options that give employees the right to buy shares in the company they work for at a fix price

A

Employee stock options

50
Q

These are most valuable when the price of the underlying stock is well above the strike price

A

Employee stock options

51
Q

This is securities that grant right similar to a call option except that when this is exercise the firm must issue a new shares and it receive the strike price as a cash inflow

A

Warrants

52
Q

This is securities that are issued by firms and that grant investors the right to buy shares of stock at a fixed price for a given period of time

A

Warrant

53
Q

Warrant attached to another security offering that give investors more upside potential

A

Equity kickers

54
Q

A bond that give investors the right to convert their bonds into shares

A

Convertible bond

55
Q

The number of shares bondholders receive if they convert their bonds into shares

A

Conversion ratio

56
Q

The market price of a convertible bond divided by the number of shares of stock that bondholders receive if they convert

A

Conversion price

57
Q

The percentage increase in the underlying stock that must occur before it is profitable to exercise the option to convert a bond into shares

A

Conversion premium

58
Q

The market price of the stock x the number of shares of stock that bondholders receive if they convert

A

Conversion value

59
Q

It is important because it helps define a lower bound on the market value of a convertible bond

A

Conversion value

Special Topic (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions