Options Flashcards
Straddles and combos
Straddles use opposite types of options, always a buy and a put.
Long = buying Short = selling
Spread
Buy and sell same class (type and stock)
Must always be executed in a margin acct
Spreads
All about the premiums!
Credit vs. Debit
Credits (short)
More in the IN column
Debits (long)
More in the out column
Impact of odd stock splits on options
- Contracts the same
- Shares increase
- Strike decreases
Same as stock divs
Covered calls are covered with?
Any one of the following:
- Owning underlying stock
- Escrow receipt
- Owning convertible bonds or stocks
- Owning call option w/same strike or lower, same stock, same expiration or later
Long combo
Buy a call, buy a put
Same: stock
Different: strike, expiration
Looking for volatility
Long straddle
Buy a call, buy a put
Same: stock, strike, expiration
Looking for volatility
Short straddle
Sell a call, sell a put
Same: strike, stock, expiration
Looking for stability
Short combo
Sell a call, sell a put
Same: stock
Different: strike, expiration
Looking for stability
Types of spread
- Vertical - different prices, go up and down
- Horizontal - different expiration, dates on a calendar go side to side
- Diagonal - different price AND expiration
Spread profit
Focus on premium
- Set up t chart
- ID if credit or debit
- WED - widen, exercise, debit
NUC - narrow, unexercised, credit
Nature of spread
Bullish - buy low, sell high (strike price)
Bearish - buy high, sell low (strike price)
Spread Breakeven
CALS
Calls Add to Lower Strike price (call spread)
PUSH
Puts U Subtract from Higher Strike price (put spread)
Put spread
Buy a put, sell a put
Impact of stock divs on options.
- Contracts the same
- Shares (per contract) increase
- Strike decreases
Impact of cash dividend on options
No affect
Covered puts are covered with?
Any one of the following:
- Owning put option w/ same strike or higher, same stock, same expiration or later
- Having cash or escrow equal to strike
- Short the underlying stock
Impact of even stock splits on options
- Contracts increase
- Shares same
- Strike decrease
Value of an option
PIT
Premium=Intrinsic Value (amount in the money) + Time Value
Call spread
Sell a call, buy a call
Breakeven
Call up = strike price + premium
Put down = strike price - premium
OPRA
The computer database that shows the bid ask if options and reports trades already executed
Occ
Issuer and guarantor of all listed options
Establishes size, dates, and strike
Randomly selects brokerage responsible for settling
Deadline for option exercise
5:30 EST on business day of expiration
When do options expire
11:59 EST 3rd Friday if the expiration month
How options settle
Settle in one business day, payment due in 5
Deadline for closing an option
4pm eastern on business day of expiration
