Options Flashcards
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What is the formula for calculating Option Premium?
Option Premium = Intrinsic Value + Time Value
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How is Time Value calculated?
Time Value = Option Premium – Intrinsic Value
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What defines the intrinsic value of a call option?
Intrinsic value equals the in-the-money amount of an option
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When is a call option considered IN-THE-MONEY?
When the stock’s market price is above the strike price
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When is a put option considered IN-THE-MONEY?
When the stock’s market price is below the strike price
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What condition defines an AT-THE-MONEY call option?
When the stock’s market price is equal to the strike price
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What condition defines an AT-THE-MONEY put option?
When the stock’s market price is equal to the strike price
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When is a call option considered OUT-OF-THE-MONEY?
When the stock’s market price is below the strike price
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When is a put option considered OUT-OF-THE-MONEY?
When the stock’s market price is above the strike price
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What is the breakeven point for the buyer OR seller of a call?
Strike Price + Premium
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What is the breakeven point for the buyer OR seller of a put?
Strike Price – Premium
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How do you calculate the breakeven points for a long or short straddle?
Strike Price of the Call + Total Premium AND Strike Price of the Put – Total Premium
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What is the breakeven for a call spread?
Lower Strike Price + Net Premium
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What is the breakeven for a put spread?
Higher Strike Price – Net Premium
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What is the breakeven for a protective put?
Original Cost of Stock + Premium
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What is the breakeven for a covered call?
Original Cost of Stock – Premium
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What is the breakeven for a protective call?
Short Sale Proceeds – Premium
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What is the breakeven for a covered put?
Short Sale Proceeds + Premium
