Options Flashcards by talia bennick

Straddle

call and put with same strike price and expiration

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Long Straddle

Buy a call and a put

want the stock price to rise

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Short Straddle

sell a call and a put

Want there to be little movement in the stock

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Combination

a call and a put with different strike prices, exp dates, or both

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Price Spread

Buy a call and write a call at different prices, with same expirations

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Time Spread

Buy a call and sell a call with different expirations, but same price

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Diagonal Spread

Buy a call and sell a call at different prices and expirations

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Closing a position

selling the options

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Designated Primary Market Maker

floor trader who is responsible for maintaining a two sided market

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Market Makers

registered to trade for their own accounts, maintain orderly.

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Floor Brokers

a firm’s representatives, executing orders on behalf of the firm

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Options Position Limits

250,000 contract limit (total of long calls and short puts, vice versa)

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Options Clearing Corporation

standardize, guarantee the performance of, and issue options contracts (designates exp. dates and strike prices)

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OCC Options Disclosure Document

When customers open an options account:

provided at or before the account approval
full and fair disclosure

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Options Agreement

signed by customer before contracts are bought/sold to recognize he/she read the disclosure, understands the risks of options trading and will honor the position limit rules

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Registered Options Principal (ROP)

designated by firm for compliance and supervisory issues

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Married Put

buys stock and a put option as a hedge

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Call = In the Money

Market Price is greater than Strike

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Call = At the Money

Market Price = Strike

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Call = Out of the Money

Market Price is less than Strike

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Intrinsic Value of Call

Market Price - Strike Price

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Breakeven of Call

Strike Price + Premium

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Put = In the Money

Market Price is less than Strike Price

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Put = At the money

Market Price = Strike Price

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Put = Out of the Money

Market Price is greater than Strike Price

Intrinsic Value of Put

Strike Price - Market Price

Breakeve of Put

Strike Price + Premium

A put premium goes (Up/Down) when stock price goes down?

Goes Up

A call premium goes (Up/Down) when stock price goes down?

Goes Down

Put Buyers are Bullish or Bearish

Bearish

Call Buyers are Bullish or Bearish?

Bullish

Call

Buyer (LONG): has right to buy | Writier/Seller (SHORT): obligation to sell

Put

Buyer (LONG): has right to sell | Writer/Seller (SHORT): obligation to buy

LONG CALL (BULLISH/BEARISH?)

BULLISH

SHORT CALL (BULLISH/BEARISH)

BEARISH

LONG PUT (BULLISH/BEARISH)

BEARISH

SHORT PUT (BULLISH/BEARISH)

BULLISH

A Put is Exercised when: a) the market price > strike price b) strike price > market price

B) Strike Price > Market Price

A Call is Exercised when: a) Market Price > Strike Price b) Strike Price> Market Price

A) Market Price > Strike Price

Time value increases/decreases as the expiration date gets closer

Decreases

MAXIMUM GAIN of Long Call?

Unlimited

MAXIMUM LOSS of Long Call?

Premium

MAXIMUM GAIN of Short Call?

Premium (for a naked/uncovered call)

MAXIMUM LOSS of Short Call?

Unlimited (for a naked/uncovered call)

MAXIMUM GAIN of Long Put

Strike Price - Premium

MAXIMUM LOSS of Long Put

Premium

MAXIMUM GAIN of Short Put

Premim

MAXIMUM LOSS of Short Put

Strike Price - Premium

Settlement of Listed Equity Options settles regular way or next business day?

Regular Way (3 business days after settlement)

Long STOCK/Long PUT STRATEGY Maximum Gain Maximum Loss Breakeven

Gain: Unlimited Loss: (Price Paid for Stock-SP)+Put Premium Breakeven: Price of Stock + Put Premium

Long STOCK/ Short CALL STRATEGY Max Gain Max Loss Breakeven

Gain: (SP-Price Paid for Stock)+Premium Received Loss: Price of Stock - Premium Breakeven: Price of Stock - Premium Received

Short STOCK / Long CALL Max Gain Max Loss Breakeven

Gain: Value of Short Sale - Call Premium Loss: (Strike Price - Short Sale Price) + Call Premium Breakeven: Short Sale Price - Premium

Short STOCK / Short CALL Max Gain Max Loss Breakeven

Gain: Premium Loss: Unlimited Breakeven: Strike + Premium

Collar

Long STOCK / Long PUT / Short CALL | Hedge a Long Position with no out of pocket cash

Call Spread

Long CALL / Short CALL

Put Spread

Long PUT / Short PUT

Debit Call Spread (BULLISH/BEARISH)

Bullish (reduces cost of LONG position)

Credit Call Spread (BULLISH/BEARISH)

BEARISH

Debit Put Spreads (BULLISH/BEARISH)

BEARISH

Credit Put Spreads (BULLISH/BEARISH)

BULLISH

Debit Spreads (Widening or narrowing of premiums?)

Widening

Credit Spreads (Widening or narrowing of premiums?)

Narrowing

Breakeven of Call Spread

Lower Strike Price + (Net Premiums)

Breakeven of Put Spread

Higher Strike Price - Net Premiums

Maximum Gain Debit Spread

(Difference between Strike Prices) - Net Debit

Maximum Loss Debit Spread

Net Debit

Maximum Gain Credit Spread

(Difference btwn Strike Prices) - Net Credit

Maximum Loss Credit Spread

Net Credit

In a Call Spread, LOWER/HIGHER strike price has the higher premium?

LOWER STRIKE PRICE

In a Put Spread, LOWER/HIGHER Strke Price has the higher Premium

HIGHER STRIKE PRICE

MAXIMUM GAIN of long straddle

UNLIMITED

MAXIMUM LOSS of LOng Straddle

SUM of Premiums

Maximum LOSS Of Short STraddle

UNLIMITED

MAXIMUM GAIN of Short STraddle

SUM of PRemiums

CALL & PUT Breakevens of a LONG STRADDLE

CALL STRIKE + BOTH PREMIUMS | PUT Strike - BOTH PRemiums

CALL & PUT BReakevens of Short STRADDLE

Call STRIKE + Both PREMIUMS | PUT STRIKE - BOTH PREMIUMS

If you expect a currency to rise in relation to US Dollar, what options?

BUY CALLS & Sell PUTS

If you expect currency to fall in relation to US Dollar, what options?

SELL CALLS & Buy PUTS

FX OPTIONS FOR IMPORTERS TO HEDGE

BUY CALLS ON FOREIGN CURRENCY

FX OPTIONS FOR EXPORTERS TO HEDGE

BUY PUTS ON FOREIGN CURRENCY (IF EXPORTING INTO US, CANNOT BUY PUT ON US $, SO BUY CALL ON FOREIGN CURRENCY)