Options/Equations/Memory Devices Flashcards
True or False: A 60 put with the market at 60 is at-the-money.
True
To offset an option sale, an investor would execute a ___________________.
Closing purchase
What is the primary use of VIX options?
To give individual investors the ability to trade market volatility
The maximum gain for an option seller is the ____________.
Premium received
Jim is short 1 MNO August 40 Put at 4.50. What is Jim’s breakeven point?
40 - 4.50 = 35.50 (strike price minus the premium or PUT DOWN)
Equity options have a contract size of _____ shares.
100 shares
An investor owns 1 ABC May 60 Call. If ABC announces a 3:2 split, what are the terms of the investor’s contract now?
1 ABC May 40 Call (150 sh. contract). Shares increase to 150 (100 x 3/2) and strike price decreases to $40 ($60 x 2/3).
An investor sells 1 ABC Jan 50 call at 2 and sells 1 ABC Jan 50 put at 3. What are the breakeven points?
50 + 5 = 55 and 50 - 5 = 45. The combined premium of 5 is added to 50 (CALL UP) and subtracted from 50 (PUT DOWN).
Glenn owns 1 ABC May 60 Call. If ABC announces a 2:1 split, how would Glenn’s position change?
Glenn now has 2 ABC May 30 Calls (100 shares each). The overall contract value must remain $6,000.
An investor buys 100 shares of IBM at 91 and also 1 IBM Nov 90 put at 2. What is the investor’s breakeven point?
91 + 2 = 93 (cost of the stock + premium paid)
An investor holds 1 XYZ Jan 80 Put at 5. Later at expiration, if XYZ has held at 80, would there be a gain or a loss?
A loss of $500, since the option expires at-the-money
Given the same expiration months and no premiums, how is the more valuable option in a put spread identified?
The put option with the higher strike price is always more valuable.
An investor sells 1 RST May 95 put at 8 and buys 1 RST May 80 put at 1. Is this a debit or credit spread?
Since the larger premium is on the sell leg, this is a credit spread, sold for a net premium of 7.
Jill buys 1 STC Nov 85 put. To create a debit put spread, Jill sells 1 STC Nov put with a strike price that is ______.
Jill buys 1 STC Nov 85 put. To create a debit put spread, Jill sells 1 STC Nov put with a strike price that is lower.
An investor buys 100 shares of RST at 30 and sells 1 RST Oct 35 call at 2. What is the investor’s breakeven point?
30 - 2 = 28 (cost of the stock - the premium received)
The maximum expiration for standard equity options is ____ months.
9 months
An investors sells 1 BBO Jan 70 call at 4 and sells 1 BBO Jan 65 put at 2. What is the investor’s maximum gain?
$600. If BBO remains between 70 and 65, both options expire and the seller makes the $600 total premium.
An investor buys 1 ABC Mar 30 call at 7 and sells 1 ABC Mar 40 call at 3. Is the investor bullish or bearish on ABC?
He is bullish. The dominant leg is the buy leg, which makes the investor the buyer of a call.
An investor holds 1 XYZ Jan 80 Put at 5. What is her maximum loss?
The premium of $500
Sandra buys 1 ABC Dec 70 Call at 4. Later ABC rises to 80 and Sandra liquidates the call for 11. What is the result?
A $700 gain. She originally paid 4, but received 11 on the sale, netting a $700 gain.
An investor writes 1 DEF May 55 Call at 6. What is the investor’s strategy?
Bearish
Long 1 DEF Apr 35 put at 3 and short 1 DEF Apr 30 put at 1. To profit, should the spread widen or narrow?
If the premium spread widens, the spread can be closed for more than $200. Remember, BUYER and WIDEN have 5 letters.
Which has unlimited risk? 1) Long stock + short call, 2) Short stock + long call, 3) Short stock + short put
Short Stock + Short Put
Jim is short 1 MNO Aug 40 Put at 4.50. Does Jim have a right or an obligation?
Obligation to buy at 40
Sandra buys 1 ABC Dec 70 Call at 4. Later at expiration, if ABC has fallen to 67, would Sandra have a gain or a loss?
A $400 loss of the premium.
Consider the following: STC May 60 Call at 3 If STC is trading at 61, how much intrinsic value does the option have?
$1.00 or 1 point
Consider the following: STC May 60 Call at 3 If STC is trading at 61, how much time value does the option have?
$2.00 or 2 points
Sandra buys 1 ABC Dec 70 Call at 4. What is Sandra’s maximum gain?
Unlimited
Buy 1 ABC Dec 70 Call at 4. When ABC rises to 80, the call is exercised and the stock is immediately sold. Result?
A $600 profit since the investor is bullish and the stock rose 6 points above the breakeven point of 74.
An investor buys 1 ABC Mar 30 call at 7 and sells 1 ABC Mar 40 call at 3. What is the investor’s maximum loss?
The net premium of $400. Remember, buyers cannot lose more than the premium.
How is the premium for a world currency option calculated?
Contract size x the premium (with decimal moved appropriately)
An investor is long 1 DEF Apr 35 put at 3 and short 1 DEF Apr 30 put at 1. Is the investor bullish or bearish on DEF?
He is bearish. The dominant leg is the buy leg, which makes the investor the buyer of a put.
Sell 1 ABC May 65 put at 9 and buy 1 ABC May 50 put at 2. Is the spread a debit or credit? Is it bullish or bearish?
The larger premium is the sell leg, so it is a credit spread. The dominant leg is the sale of a put, so it is bullish.
An investor sells short 100 shares of MNO at 35 and sells 1 MNO Jan 30 put at 3. What’s the investor’s maximum loss?
Unlimited. The investor has no protection if the stock continues to rise above the 38 breakeven.
Identify the type of spread: An investor is long 1 MCD Jun 50 call and is short 1 MCD Sep 60 call.
A spread with different expirations and different strikes is a Diagonal spread.
An investor holds 1 XYZ January 80 Put at 5. What is her breakeven point?
80 - 5 = 75 (strike price minus premium or PUT DOWN)
An investor sells 1 ABC Mar 30 call at 7 and buys 1 ABC Mar 40 call at 3. Is this a debit or credit spread?
Since the larger premium is on the sell leg, this is a credit spread, sold for a net premium of 4.
If asked to determine basis or sales proceeds on an exercised put, remember to ____________.
If asked to determine basis or sales proceeds on an exercised put, remember to PUT DOWN (strike price minus the premium)
An investor is long 1 DEF Apr 35 put at 3 and short 1 DEF Apr 30 put at 1. Is this a debit or credit spread?
Since the larger premium is on the buy leg, this is a debit spread, bought for a net premium of 2.
An investor sells 1 RST May 95 put at 8 and buys 1 RST May 80 put at 1. What is the investor’s maximum loss?
$800. If the stock falls, the investor could lose starting from the breakeven of 88 down to 80.
Long 1 TNT Aug 50 call at 5 and short 1 TNT Aug 60 call at 2. Is the spread a debit or credit? Is it bullish or bearish?
The larger premium is on the buy leg, so it is a debit. The dominant leg is the purchase of a call, so it is bullish.
An investor buys 1 DEF May 50 call at 3 and buys 1 DEF May 40 put at 1. What is the investor’s strategy? (volatility or stability)
Volatility
There is an inverse relationship between the movement of a world currency and the _____________.
US dollar
With options, what terms are synonymous with buyer?
Owner, holder, long
An investor buys 1 ABC Mar 30 call at 7 and sells 1 ABC Mar 40 call at 3. What is the investor’s breakeven point?
30 + 4 = 34 (always between strikes). For call spreads, the net premium is added to the lower strike (CALL UP).
When does volatility tend to increase?
When the market (S&P 500) drops abruptly
True or False: Option writers want contracts to expire at- or out-of-the-money.
True
An investors sells 1 BBO Jan 70 call at 4 and sells 1 BBO Jan 65 put at 2. What is this position?
Short Combination
An investor buys an OEX May 475 call at 10. What is his maximum gain?
Unlimited
What is the settlement for spot trades?
T + 2
An investor owns 1 ABC May 60 Call. If ABC declares a 25% stock dividend, what is the investor’s new position?
1 ABC May 48 Call. The call is for 125 shares (100 x 25% = extra 25). Then, $6,000 (total value) ÷ 125 sh. = $48.
Define a series of options.
Define a series of options
All options with the same underlying interest, expiration month, strike price and type (e.g. ABC May 60 Call)
What is a covered call position?
The sale of a call (obligation to sell) against stock that is owned
If asked to determine basis or sales proceeds on an exercised call, remember to ____________.
Remember to CALL UP (strike price plus the premium).
What are two uses of index options?
1) speculate on market movement
2) hedge a portfolio
Jim is short 1 MNO Aug 40 Put at 4.50. If MNO rises to 44 at expiration, would Jim have a gain or a loss?
A gain of the $450 premium
A call option is in-the-money when the market price is ____________ the strike price.
Above
True or False: When adjusted for stock splits or stock dividends, an option’s overall contract value remains constant.
True
What is the tax result for a LEAP that was purchased at 6 and two years later sold at 12?
A long-term capital gain of $600. Remember, a gain on an asset held greater than one year is long-term.
An investor, believing interest rates will rise, could profit by taking what yield-based option position?
Buy yield-based calls or write yield-based puts
An investor buys 1 DEF May 50 call at 3 and buys 1 DEF May 40 put at 1. What is this position?
Long Combination
Sell 1 ABC Mar 30 call at 7 and buy 1 ABC Mar 40 call at 3. For profit, should the spread widen or narrow?
If the premium spread narrows, much of the $400 net premium is kept. Remember, SELLER and NARROW have 6 letters.
True or False: A 110 call with the market at 108 is out-of-the-money.
True
True or False: A combination contains either two calls or two puts.
True
True or False: A spread consists of both a call and a put.
False. A spread consists of either 2 calls OR 2 puts.
Is a combination a Spread or Straddle?
Straddle (1 Call and 1 Put with different XP OR Exp.)
An investor is long 1 DEF Apr 35 put at 3 and short 1 DEF Apr 30 put at 1. What is the investor’s maximum gain?
$300. If the stock falls, the investor could profit starting from the breakeven of 33 down to 30.
An investor holds 1 XYZ Jan 80 Put at 5. What is her maximum gain?
$7,500 (strike price minus premium)
For most world currency quotes, the decimal must be moved how many places to the left to convert to U.S. dollars?
Two places to the left
An investor buys 1 XYZ Dec 70 call at 4 and buys 1 XYZ Dec 70 put at 4. What is the investor’s maximum loss?
$800. If XYZ stays at 70, both options expire. Remember, buyers cannot lose more than the premium.
Long 1 XYZ Jan 80 Put at 5. Later XYZ falls to 68, and the put is liquidated at its then premium of 12.50. Result?
A $750 gain. The investor originally paid $500, but then received $1,250, netting a $750 gain.
An investor holds 1 XYZ Jan 80 Put at 5. What is the result if later XYZ falls to 65, and the put is exercised?
A profit of $1,000. The investor needed the stock down at 75 to breakeven, and the stock fell 10 points beyond 75.
If exercised against, the writer of an equity call option is obligated to _____ the underlying stock.
Sell
If the OCC examines position limits on ABC, what contracts are added on the bullish side of the market?
ABC long calls and ABC short puts
A put option is in-the-money when the market price is ____________ the strike price.
Below
An investor buys 1 XYZ Dec 70 call at 4 and buys 1 XYZ Dec 70 put at 4. What is the investor’s maximum gain?
Unlimited gain on the long call, $6,200 gain on the long put. Gains occur if the stock rises or falls dramatically.
Joe sells 1 ABC Oct 55 call. To create a debit call spread, Joe buys 1 ABC Oct call with a strike price that is ______.
Lower
Spreads consist of what 2 options?
2 Calls OR 2 Puts
Identify the spread: Sell 1 STC Sept 50 call and Purchase 1 STC June 50 call
This is a time, calendar, horizontal, or date spread.
A horizontal spread is synonymous with what 3 other terms?
1) Time spread
2) Calendar spread
3) Date spread
An investors sells 1 BBO Jan 70 call at 4 and sells 1 BBO Jan 65 put at 2. What are the breakeven points?
70 + 6 = 76 and 65 - 6 = 59. The combined premium of 6 is added to 70 (CALL UP) and subtracted from 65 (PUT DOWN).
Eric sold a 50 call at 6 and was later exercised against. Eric would have sales proceeds of how much?
$5,000 + $600 = $5,600 or 56 (strike price plus the premium)
An investor sells 1 ABC Jan 50 call at 2 and sells 1 ABC Jan 50 put at 3. What is the investor’s maximum loss?
Unlimited loss on the short call, $4,500 loss on the short put. Losses occur if the stock rises or falls dramatically.
True or False: If an investor expects the U.S. dollar to strengthen, she could profit by buying U.S. dollar calls.
False. There are no U.S. dollar calls or puts issued; therefore, all answers must be based on a world currency.
Short 1 MNO Aug 40 Put at 4.50. MNO falls to 30, the put is exercised and the stock is immediately sold. Result?
A loss of $550. The breakeven is 35.50, but the stock fell 5.50 lower than 35.50.
Bill writes 1 DEF May 55 Call at 6. Later DEF rises to 70 and the call is exercised, what is Bill’s result?
$900 loss. The writer could afford the stock rising to 61(breakeven), but the stock rose 9 points higher than 61.
True or False: The buyer of a British pound call will profit if the British pound rises with a falling U.S. dollar.
True
An investor sells 1 ABC Jan 50 call at 2 and sells 1 ABC Jan 50 put at 3. What is the investor’s maximum gain?
$500. If ABC stays at 50, both options expire and $500 is made. Remember, sellers cannot make more than the premium.
An investor sells 1 ABC Mar 30 call at 7 and buys 1 ABC Mar 40 call at 3. What is the investor’s maximum gain?
The net premium of $400. Remember, sellers cannot make more than the premium.
An investor purchases 1 XRX May 60 call at 6 and writes 1 XRX May 70 call at 2. Is this a debit or credit spread?
Since the larger premium is on the buy leg, this is a debit spread, bought for a net premium of 4.
An investor sells short 100 XYZ at 47 and buys 1 XYZ Nov 50 call at 3. What is the investor’s maximum gain?
If the stock falls to zero, the investor could potentially make $4,400 ($4,700 - the $300 premium).
True or False: The Interbank Market is a fully regulated and centralized market.
False. The Interbank Market is unregulated and decentralized.
Consider the following: BNB Jan 30 Put at 2 If BNB is trading at 30, how much intrinsic value does the option have?
0, it is at-the-money
A _______-based index measures the movement of a particular sector or industry.
Narrow
An investor sells 1 ABC Mar 30 call at 7 and buys 1 ABC Mar 40 call at 3. Is the investor bullish or bearish on ABC?
She is bearish. The dominant leg is the sell leg, which makes the investor the seller of a call
An investor who buys stock and on the same day buys a put (creating a hedge) has established a ________________.
An investor who buys stock and on the same day buys a put (creating a hedge) has established a married put.
Buy 1 ABC Mar 30 call at 7 and sell 1 ABC Mar 40 call at 3. For profit, should the spread widen or narrow?
If the premium spread widens, the spread can be closed for more than $400. Remember, BUYER and WIDEN have 5 letters.
What does the acronym SILO stand for?
Short Inside ; Long Outside (for straddles)
What does the acronym CEN DEW stand for?
Credit expires Narrow ; Debit exercise Widen (for spreads)
Are Debit Call Spreads (DCS) bullish or bearish?
Bullish
Are Credit Put Spreads (CPS) bullish or bearish?
Bearish
For a DCS (debit call spread), think of:
In Washington DC you ride the bus (bus = bullish)
For a CPS (credit put spread), think of:
Child Protective Services send parents to jail on a bus (bus = bullish)
Credit goes together with Narrow or Widen?
Narrow (Credit and Narrow have 6 letters)
Debit goes together with Narrow or Widen?
Widen (Debit and Widen have 5 letters)
What is CAL PuSH used to help remember? What does each stand for?
Breakeven for Spreads ;
CAL (Call Add Lower XP)
PuSH (Put Subtract Higher XP)
What does BULLS concern? What does BULLS stand for?
Bull/Bear in any Spread ;
Because Ur Long Lower Strike (if you’re long the lower XP, you’re Bullish)
Working Capital equation:
Working Capital = Current Assets - Current Liabilities
Current ratio:
Current Assets / Current Liabilities
Debt-to-Equity ratio:
Total Liabilities / Equity (Shareholders’ Equity)
“LTD + SHE”
Acid Test (Quick Ratio):
(Current Assets - Inventory) / Current Liabilities
What does Other Peoples Monies Count help remember?
What departments an order goes through when placed ;
Order dept., Purchase & sales dept., Margin dept., Cashiering dept.
Dividend Payout ratio:
Annual Dividend / EPS
Current Yield:
Annual Dividends / Current Market Price
Parity of Common Stock:
Current Market Price / Conversion Ratio
Tax-Equivalent Yield (TEY):
Taxable Yield / (100% - Tax Bracket%)
Tax-Free Equivalent Yield (TFE):
Taxable Yield x (100% - Tax Bracket%)
Market Capitalization formula:
Shares Outstanding x Current Market Price
Equity in Long Margin (LM) account formula:
Equity = LMV (long market value) - DB (debit balance)
Equity in a Short Margin (SM) account formula:
Equity = SMV (short market value) - CB (credit balance)
Equity in both a Long Margin (LM) account with a Short Margin (SM) account formula:
Equity = LMV +SMV - DB - CB
Revised Debit Balance formula:
Equity
Breakeven for Writer of Covered Call:
Purchase Price - Premium Received
A Long Straddle consists of:
Buying Put + Call (Same XP & Exp.)
A Short Straddle consists of:
Selling Put + Call (Same XP & Exp.)
Sales Charge formula:
(Offer-Bid) / Offer
What is the Breakeven for Straddles?
Sum of both premiums
Total Bonded Debt formula:
Long Term + Short Term + Overlapping
Net Revenue formula:
Gross Revenue - Operating Expenses
POP formula:
NAV / (100% - Sales Charge %)
The maximum potential loss when selling short is ____________.
Unlimited
What does a Combination consist of?
A straddle (1 call and 1 put) with contracts that have different XPs OR Exp.
What type of option is the following:
Buy 5 DEF March 50 Calls at 3
Buy 5 DEF March 40 Puts at 1
Combination (straddle with different XP OR Exp.)
Define a Price Spread:
When the two options of the spread have the same expiration month, but different
strike prices (vertical, dollar)
Buy 1 ABC March 30 call
Write 1 ABC March 40 call
Define a Time Spread:
When the two options of the spread have the same strike price, but different expiration months (calendar, date, horizontal)
Buy 1 ABC March 30 call
Write 1 ABC June 30 call
Define a Diagonal Spread:
If the two options of the spread have different strike prices and different expiration months (merging of vertical + horizontal spreads)
Buy 1 ABC March 30 call
Write 1 ABC June 40 call
What type of Spread is the following:
Buy 1 ABC March 30 call
Write 1 ABC June 30 call
Price (dollar/vertical) Spread
What type of Spread is the following:
Buy 1 ABC March 30 call
Write 1 ABC June 40 call
Diagonal Spread
What type of Spread is the following:
Buy 1 ABC March 30 call
Write 1 ABC June 30 call
Time (calendar, date, horizontal) Spread
Is the following a Net Debit or Net Credit Spread:
Buy 1 ABC March 40 Call at 3
Sell 1 ABC March 45 Call at 1
Net Debit (Buy premium is higher)
Is the following a Net Debit or Net Credit Spread:
Sell 1 XYZ October 65 Put at 7
Buy 1 XYZ October 55 Put at 1
Net Credit (Sell premium is higher)
What is a Butterfly Spread?
2 spreads that are established simultaneously —one is a bullish spread
and the other is a bearish spread
Long 1 ABC June 90 call at 4,
Short 2 ABC June 80 calls at 7 each, and
Long 1 ABC June 70 call at 13
(1-2-1)
Purchasing a Protective Put? Why is it created? Bullish, Bearish, or Neutral?
Long Stock + Long Put (Protective Put) ;
Protection ;
Bullish ;
Max. Gain = Unlimited
Cost of stock + Premium – XP (x 100 sh.)
Purchasing a Protective Call? Why is it created? Bullish, Bearish, or Neutral? Breakeven? Max. Gain/Loss?
Short Stock + Long Call (Protective Call) ;
Protection ;
Bearish ;
Max. Gain = Short Sale Proceeds - Premium (x 100 sh.)
Max. Loss = XP + Premium - Short Sale Proceeds (x 100 sh.)
Writing a Covered Call? Why is it created? Bullish, Bearish, or Neutral? Breakeven? Max. Gain/Loss?
Long Stock + Short Call (Covered Call) ;
Generate Income ;
Bullish to Neutral
Breakeven = Cost of Stock - Premium
Max Gain: XP + Premium - Cost of Stock (x 100 sh.)
Max. Loss: Cost of Stock - Premium (x 100 sh.)
What is a Collar?
BOTH the writing of a covered call and the purchase of a protective put.
Long 100 shares of DEF at $62 per share and
Long 1 DEF May 60 put and
Short 1 DEF May 65 call
What is Ratio Writing? What is the objective?
A long stock position with an
unequal number of calls written against it ;
Buy 100 shares of XYZ stock at $78 AND
Sell 2 XYZ October 80 calls for a combined premium of 8;
Increase the income from writing more calls
than the number of shares of stock owned
Writing a Covered Put? What is the objective? Bullish, Bearish, or Neutral? Breakeven? Max Gain/Loss?
Short Stock + Short Put (Covered Put) ;
Generate Income ;
Bearish to Neutral ;
Breakeven = Short Sale proceeds - Premium
Max Gain = Short Sale Proceeds + Premium - XP (x 100 sh.)
Mas Loss = Unlimited
Net Debit Spread Profitability (widen/narrow)? Bullish, Bearish, or Neutral for Call/Put Spreads? Breakeven for Call/Put Spreads? Max. Gain/Loss?
Widen ;
Strategy for Call Spreads: Bullish ;
Strategy for Put Spreads: Bearish ;
B/E for Call Spreads = Lower XP + Net Premium ;
B/E for Put Spreads = Higher XP - Net Premium ;
Max. Gain = Difference in XP - Net Premium
Max. Loss: Net Premium
Net Credit Spread Profitability (widen/narrow)? Bullish, Bearish, or Neutral for Call/Put Spreads? Breakeven for Call/Put Spreads? Max. Gain/Loss?
Narrow ;
Strategy for Call Spreads: Bearish ;
Strategy for Put Spreads: Bullish ;
B/E for Call Spreads: Lower XP + Net Premium ;
B/E for Put Spreads: Higher XP - Net Premium ;
Max. Gain = Net Premium
Max. Loss = Difference in XP - Net Premium
Long Straddle Strategy (Volatility/Stability)? Breakeven? Max. Gain/Loss?
Volatility ;
B/E: XP + and - Total Premium ;
Max. Gain = Unlimited
Max. Loss = Total Premium
Short Straddle Strategy (Volatility/Stability)? Breakeven? Max. Gain/Loss?
Stability ;
B/E: XP + and - Total Premium ;
Max. Gain = Total Premium
Max. Loss = Unlimited
Writing Uncovered Calls Strategy? Breakeven? Max. Gain/Loss?
Bearish ;
B/E: XP + Premium
Max. Gain = Premium
Max. Loss = Unlimited
Writing Uncovered Puts Strategy? Breakeven? Max. Gain/Loss?
Bullish ;
B/E: XP - Premium
Max. Gain = Premium
Max. Loss = XP - Premium (x 100 sh.)
Buying Calls Strategy? Breakeven? Max. Gain/Loss?
Bullish ;
B/E: XP + Premium
Max. Gain = Unlimited
Max. Loss = Premium
Buying Puts Strategy? Breakeven? Max. Gain/Max. Loss?
Bearish ;
B/E: XP - Premium
Max. Gain = XP - Premium (x 100 sh.)
Max. Loss = Premium
What is the EPIC used to remember?
Exporters buy Puts ; Importers buy Calls
An investor who is Bullish should do what 2 things? Which has more Risk?
1) Buy a Call
2) Sell a Put (substantial risk)
An investor who is Bearish should do what 2 things? Which has more Risk?
1) Buy a Put
2) Sell a Call (unlimited risk)
An investor who is long stock and wants protection should:
Buy a Put
An investor who is long stock and wants to generate income should:
Sell a Covered Call
An investor who is short stock and wants protection should:
Buy a Call
An investor who is short stock and wants to generate income should:
Sell a Covered Put
An investor who is long portfolio of stock and wants protection should:
Buy a Narrow-Based Index Put
An investor who is long portfolio of stock and wants to generate income should:
Sell a Narrow-Based Index Call
An investor who is expecting volatility should:
Buy a Straddle or Combination
An investor who is expecting stability should:
Sell a Straddle or Combination
An investor who is mildly bullish, wants to assume limited risk, and is willing to accept limited gain could do what 2 things?
1) Make a Debit Call Spread
2) Make a Credit Put Spread
An investor who is mildly bearish, wants to assume limited risk, and is willing to accept limited gain could do what 2 things?
1) Make a Credit Call Spread
2) Make a Debit Put Spread
An option’s premium is determined by the following formula:
Intrinsic Value + Time Value
What is a Married Put? What is the cost basis?
When an investor buys shares of stock and, ON THE SAME DAY, buys a put on the stock ;
Cost Basis = Cost of Stock + Cost of Option
If an investor has owned a stock for less than one year and then buys a put on that stock, the stock’s holding
period will be ______
Terminated
If an investor buys shares of stock and establishes a long-term holding
period, a subsequent put purchases has ______ affect the client’s holding period in the stock.
No affect (considered long term if shares held 1+ year)
If an investor believes Yields (interest rates) will increase, they could do what 2 things?
1) Buy Yield-Based Calls
2) Sell Yield-Based Puts
If an investor believes Yields (interest rates) will decrease, they could do what 2 things?
1) Buy Yield-Based Puts
2) Sell Yield-Based Calls
Australian Dollars, British Pounds, Canadian Dollars, Euros, and Swiss Francs have a Units/Contract size of _____. What is the currency that differs from this rule and what is its Units/Contract size?
10,000 ;
Japanese Yen (1,000,000)
