Options Flashcards
Breakeven point for a Call spread
- Work out premium difference
- Add lower strike price
Breakeven point for a Put spread
- Work out premium difference
- Subtract higher strike price
Covered call
When you own the stock and sell a call option - for protection
Brekeven for Call straddle
- Work out premiums
- Add to strike
Breakeven for Put straddle
- Work out premium
- Minus the strike
Intrinsic value
Difference between market price and strike price
Call buyers want stock to go
Up
Put buyers want stock to go
Down
Call sellers want stock to go
Down
Put sellers want stock to go
Up
Buying Calls =
Right to buy
Buying Puts =
Right to sell
Selling Calls =
Obligation to sell
Selling Puts =
Obligation to buy
An insurance policy against falls in price
Buying puts
When closing an option, the gain / loss is the difference between:
the premiums paid
A Call option
The option to Buy
A Put option
The option to Sell
Sells are obligations
Buys are rights
If you buy a call you want it to go up.
if you buy a put, you want it to go down
Debit (bear) spread is a net buy
Credit (bull) spread is a net sell
Beakeven for Calls
Total premiums + Strike lower price
Beakeven for Puts
Total premiums minus Strike price
Calender spread
Buy near expiratoin. Sell distant expiratoin
Long Straddle
Buying a call and buying a put with same strike price and expiratoin
Short Straddle
Selling a call and selling a put with the same strike and expiratoin
Long Puts are in the money when
The stock trades below the Strike price
Long Calls are in the money when
The stock trades above the Strike price
Spreads
Work out the difference between the ask prices
Bullish
Buy calls
Sell puts
Bearish
Sell calls
Buy puts
Call spreads
Straddles are good when
Market is stable or when you are unsure of direction
FX options
Traded any time but only exercised at expiration
Debit spread
Investors profit if it widens
Debit spread
Investors profit if it widens or both sides excersize
Credit spread
Investors profit if it narrows or both sides expire
To protect short positions
Use long calls
If there is no intrinsic value and the stock value is worthless ..
The writer (seller) profits.
Gain =
Difference between the purchase price and strike
- minus premium
Combos and straddles have TWO break even points
Add the premiums together to the call price. subtract from the put price
50% stock dividend = 50% more shares.
Divide total by new amount
Cost of establishing spreads is SIMPLE.
One premium less the other premium
Maximum loss on short calls.
Share price minus the premium collected, multimplied by number of shares
European style executions - last day of trading.
US - can be any
Put Debit Spreads are profitable when:
- Spreads widen
- Excersized
Put Credit Spreads are profitable when:
- Spreads narrow
- Expire
Using yield-based options
Buy 30 yr T bond calls
Intrinsic Value
Strike price minus Stock price
When calculating intrinsic value
Dont count the premium
Straddles:
Work out intrinsic value plus or mins the premiums
In the money (intrinsic value)
Market price plus or minus strike price
Measure break even on call spread
Adding the difference between premiums to the lower strike price
Measure break even on a put spread
Subtracting the difference between premiums from the higher strike price
If you write more calls than you can cover
You will be fucked
Max loss in credit spread
The difference between the strikes the total premiums.
Max gain in credit spread
The total of premiums
Max gain in debit spread
The difference between the strikes and total premiums
Max loss in debit spread
The total of premiums
