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Series 9 - Self Study 2021 > Options - Shortcuts And Memorize > Flashcards

Options - Shortcuts And Memorize Flashcards

1
Q

(Put/call) Straddle Breakeven

A

*Buying: Add total premiums to Call strike, reduce Put strike by total premium.

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2
Q

Profitable Spread (Long/Debit)

A

Spread on premium must widen to close because you are long the higher premium contract.

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3
Q

Profitable Spread (short)

A

Premium spread must narrow to close because you are short the more expensive contract.

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4
Q

Breakeven for spread - which contract is in focus?

A

The short contract almost always determines the breakeven, as that is the place where you can incur loss.

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5
Q

Long Call Strategy characteristics

A

Market Sentiment: Bullish
MPG: Unlimited
MPL: Premium paid
B/E: Strike + Premium

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6
Q

Short Call Strategy Characteristics

A

Market Sentiment: Bearish
MPG: Premium Received
MPL: Unlimited
B/E: Strike + Premium

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7
Q

Long Put Strategy Characteristics

A

Market Sentiment: Bearish
MPG: B/E to $0
MPL: Premium Paid
B/E: Strike - Premium

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8
Q

Short Put Strategy Characteristics

A

Market Sentiment: Bullish
MPG: Premium Received
MPL: B/E to $0
B/E: Strike - Premium

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9
Q

Must report positions of ____ contracts or more of any one single class of option to CBOE/OCC

A

200 contracts

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10
Q

LOPR

A

Large Options Position Report

In aggregating common control positions on same side of market; filed T+1 changes filed no later than T+5

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11
Q

When is LOPR required by?

A

T+1

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12
Q

___ Cycles of expiration

A

3 cycles

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13
Q

Expiration Cycle 1

A

Jan, Apr, Jul, Oct

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14
Q

Expiration Cycle 2

A

Feb, May, Aug, Nov

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15
Q

Expiration Cycle 3

A

Mar, Jun, Sep, Dec

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16
Q

Weekly Options Issuance and Expiration

A

Issued on Thursday, Expires Friday 8 days later

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17
Q

Options Trading Cut Off

A

4:00pm ET, Friday before expiration

Followed by, “Closing Rotation”

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18
Q

Monthly Options Expiration

A

3rd Friday of the Month 11:59PM ET (Triple Witching)

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19
Q

Exercise Cut Off

A

5:30pm ET, third Friday of the month - up to expiration

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20
Q

CEA

A

Contrary Exercise Advice = stops automatic exercise, or exercises out of the money

*Accepted 2 hours after 5:30pm exercise cutoff… I.e. until 7:30PM third Friday of the month

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21
Q

American Options

A

Can be exercised at any time before expiration; OEX - S&P 100

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22
Q

European Options

A

Exercisable only at expiration

Nearly all index options, except OEX; Specifically S&P 500 - SPX options

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23
Q

Premium Increments

A

$0.05 @ < $3 prem, $0.10 @ >= $3 prem

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24
Q

Expiration of Equity Options Contracts

A

11:59pm ET on 3rd Friday of the month

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25
Q

Synthetic Long Call

A

Long Stock/ Long Put

-/- strategy

Characteristics: Unlimited upside; Premium max downside; B/E is market price + premium

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26
Q

Synthetic Long Put

A

Short Stock/ Long Call

-/+ strategy

Characteristics: Max gain stock goes to $0; loss limited to premium; B/E is market px - premium

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27
Q

Synthetic Short Call

A

Short stock / Short Put

+/+ strategy

Characteristics: Unlimited loss potential; Gain limited to premium; B/E is market px + premium

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28
Q

Synthetic Short Put

A

Long Stock / Short Call

+/- strategy

Characteristics: Max loss stock to $0; Gain limited to premium; B/E is market px - premium

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29
Q

Options Trade Settlement

A

Next Business day; UNLESS clearing in cash - same day settle

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30
Q

Clearing of Options Writer

A

Stock must be purchased or delivered to holder within 2 business days after exercise

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31
Q

Changes to initial LOPR reported by _____

A

T + 5

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32
Q

Exercise Limits

A

Limits number of contracts that can be exercised within 5 business days

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33
Q

Adjustment to contracts (Whole Share Split)

A

ABC stock splits 2:1
Multiplies contract number, divides price

  • Before: 1 ABC Jan 60 Call*
  • After: 2 ABC Jan 30 Calls*
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34
Q

Adjustment to Contracts (Fractional splits and Stock Dividends)

A

No change to number of contracts, strike and number of shares change

** ABC pays 20% stock dividend
Before: 1 ABC Jan 60 Call
After: 1 ABC Jan 50 Call covering 120 shares

120% shares; 60/1.2 = 50

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35
Q

Adjustment to Contracts (Reverse Stock Split)

A

No adjustment to contract, only deliverable and price on exercise

  • ABC split 1:3
    Same contract terms - 1 ABC JAN 20 Call
    Delivers shares 100/3 = 33.33 shares @ $20 x 3 = 60

** The fraction of stock is delivered in cash, 33 shares received.**

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36
Q

Maximum Life of Standard Equity Options (Technical)

A

9 months (tested) Actual is 8 months

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37
Q

LEAP Issuance Months

A

Sept, Oct, Nov

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38
Q

LEAP life cycle

A

~28 months, always expire in January

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39
Q

LEAPs Legal Maximum Life

A

39 months (determined by SEC)

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40
Q

Mini-Contracts

A

10 shares

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41
Q

Jumbo Contracts

A

1,000 shares underlying

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42
Q

Option Type

A

Call or Put

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43
Q

Option Class

A

Type and Underlying are same

  • All IBM Calls
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44
Q

Option Series

A

Same type, Class, strike and expiration

  • all IBM Jan 50 Calls
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45
Q

VIX Contracts Characteristics

A

Available on the upcoming 2 months, plus 1 month on Feb Quarterly Schedule

(Feb-May-Aug-Nov)

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46
Q

VIX Exercise Settlement

A

Based on monthly calculation of upcoming 30 day price volatility

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47
Q

Adjustment to contracts:

Cash dividends

A

No change

48
Q

Adjustments to contracts:

Whole Share Splits

A

Number of contracts increase;

Strike price reduced

49
Q

Adjustments to contracts:

Fractional splits and stock dividends

A

No change to contracts #;
Strike and # of shares adjusted

I.e. 20% stock dividend (120% of original)
1.2 x 100 = 120 shares covered
Strike / 1.2 = New Strike

50
Q

Adjustments to Contracts:

Reverse Stock Splits

A

No adjustment to contracts; deliverable and price is adjusted if exercised

I.e. ABC Split 1:3
1ABC Jan 20 Call
Deliverable becomes 100/3=33.33 shs
$20 x 3= $60
**Fractional shares always paid in cash, whole 33 shs delivered**
51
Q

Minus-Plus Strategy

A

Long Put - maximum gain is always stock goes to “0”

Maximum loss is premium

52
Q

Minus-Minus Strategy

A

Long Call - unlimited potential gain

Maximum loss is premium paid

53
Q

Long Call Spread

A

AKA. Debit Spread; net debit from strategy opening; net buyer of position; purchased call strike is lower than written strike

54
Q

Short Call Spread

A

AKA. Credit Spread; results in net credit from strategy opening; written call strike is lower than purchase; net seller on the underlying

55
Q

Long Put Spread

A

AKA. Debit spread; net debit from opening strategy; long put strike is higher than written strike; net seller of the underlying

56
Q

Short Put Spread

A

AKA. Credit spread; net credit received from opening strategy; strike on written option is higher than purchase; net buyer of the underlying

57
Q

Calendar Spread; “Time” spread; “Horizontal”

A

Same strike and side of options, different expiration date

58
Q

Price Spread; “Vertical” spread

A

Only difference is price resulting in the standard Long/Short, Call/Put spreads.

59
Q

Diagonal Spreads

A

Combine strike price and expiration differences in the strategy

60
Q

Butterfly Spread

A

Market is expected to be flat. Combination of bull and bear spreads. Maximum gain at central strike (the written positions or “body”). Strike is the same in the body.

61
Q

Maximum loss of Butterfly

A

Debit paid on spread

62
Q

Maximum Gain of Butterfly

A

Central strike price in the “body.”

63
Q

Upside Breakeven for Butterfly (Calls)

A

Difference in strike prices, net of debit, added to lowest strike

I.e.: Lowest strike = $50; highest strike = $70; Debit = $2; Difference between wings = $20; $20-2=$18; 18+50= $68 Breakeven

64
Q

Downside Breakeven of Butterfly (Calls)

A

Difference in strike prices, net of debit subtracted from highest strike

I.e.: Lowest strike = $50; highest strike = $70; Debit = $2; Difference between wings = $20; $20-2=$18; 18-70= $52 Breakeven

65
Q

Condor Spread

A

Market is expected to be flat. “Wider body” than butterfly; characterized by vertical spread between written contracts in the “body”

66
Q

Condor Maximum Gain (Calls)

A

Between the body spreads; Lower strike written call and higher strike written call

67
Q

Iron condor

A

Market neutral; consists of Call Spread and out-of-the-money Put Spread; strikes are stacked as credit spreads on both sides.

68
Q

Iron condor maximum gain

A

Credit Spread from written Calls and Puts. Market remains in the middle of the “body”

69
Q

Debit Spread Profitable

A

Premiums widen

70
Q

Credit Spread Profitable

A

Premiums narrow

71
Q

Delta Neutral Strategy

A

Market expected to be volatile; Delta (premium volatility) is phased out with small price changes; Long Straddle at the money is perfect example.

72
Q

“Covered” Straddle

A

Long stock @ $50, short a call and put at $50. Income generation

73
Q

Automatic Exercise

A

Options exercised if at least $0.01 in the money

74
Q

Options Disclosure Agreement

A

Provided to customer no later than options account approval

75
Q

Options Clearing Prospectus

A

Provided at customer’s request

76
Q

Assignment of Exercise Notices

A

OCC receives exercise notice from brokerage firm, OCC randomly assigns to short contract.

Firm can then assign FIFO or randomly. Cannot change methodology

77
Q

Stock delivery on Exercise

A

2 business days after exercise date

78
Q

Exercise Call to receive dividend by…

A

At least 1 day before Ex-date (because stock is delivered exercise + 2 business days and record date is 1 day after ex-date)

79
Q

Exercise Put (Long stock/ Long Put) after __________ to retain dividend.

A

After ex-date

80
Q

Position Limits

A

Applies to individuals and parties “acting in concert” or with “common control” and only on same side of trade, I.e. Long call and short put.

81
Q

Position limits most commonly impact…

A

Registered Rep taking discretion on number of options accounts

82
Q

3 possible Covered Writing Scenarios (Calls and Puts)

A
  1. Long underlying stock (short calls) or cash/margin available (short puts)
  2. Debit Spreads: Long same options series with lower strike (call) or higher strike (put) than written contract.
  3. Long an escrow receipt (Stock held away at a bank; calls) or Bank guarantee (Bank credit letter or proof of cash dep.; puts)
83
Q

XMI

A

Major Market Index: 20 of DJIA stocks, tracks with 99% accuracy, traded on AMEX. Somewhat obsolete after DJX initiated in 1997.

84
Q

OEX

A

S&P 100, traded on CBOE as of 1983

85
Q

SPX

A

S&P 500 options, traded on CBOE as of 1984

86
Q

DJX

A

Dow Jones Industrial Average options, traded on CBOE as of 1997. Covers all 30 stocks

87
Q

Index options European trading cut-off

A

“AM” settlement; trading stopped third Thursday of the month before expiration, closed on Friday morning.

88
Q

Index Options American trading cut-off

A

“PM” settlement; traded through 3rd Friday of the month until close of NYSE at 4:00pm

89
Q

Hedging Formula with Index Options

A

Market Value of portfolio / Strike = Number of Contracts

90
Q

Beta-adjusted Hedging with Index Options

A

Beta x (Market Value of portfolio / Strike Px) = Number of Contracts

91
Q

BuyWrite Index Options

A

“BX” stands for BuyWrite

BXM - S&P 500
BXD - DJIA
BXN - Nasdaq 100

1-month forwards, premium based on VWAP.

92
Q

Treasury options value for margin

A

Face value, not market value

93
Q

Currency Options

A

European style; settlement in 1 or 2 business days (depends on trading frequency) in cash; 24 hr trading; traded on Philadelphia Exchange (PHLX); Exercise value determined by Federal reserve 12:00pm on the 3rd Friday of the month (AKA “Buying Rate”)

94
Q

Foreign Currency Contract Size

A

10,000 units of currency; except Japanese Yen is in 1,000,000

95
Q

Forex Options Multiplier

A

100

96
Q

Position limits on Forex Options

A

200,000 on same side of market in single currency

97
Q

Required info for Options New Account

A

Name, Address, “Cash or Margin,” DOB, telephone number, SSN/ TAX ID (W-9), Occupation and Employee name, Employment Status

SEC Rule 17a-3

98
Q

Independent Verification of New Options account info

A

As of Oct. 2003 verified by Equifax

99
Q

Additional New Account details for suitability

A
  • Trading history, objective
  • financial situation
  • marital status/ number of dependents
  • net worth
  • liquid net worth
  • estimated annual income
100
Q

Special Statement for Naked Writers

A

Includes a number of disclosures about potential risks.

101
Q

Options agreement signed and delivered by…

A

15 days after account opening

102
Q

In-branch BOM/ROP not required if…

A

Fewer than 4 registered reps in an office

103
Q

BOM

A

Branch office manager, Series 9/10 registered. Not qualified for overall supervision.

104
Q

ROP

A

Registered Options Principal, Series 4 registered and can do anything a BOM can do. Also conducts overall supervision.

If located in different office: Must alternate review responsibility every 2 years, not sit in same office as producing manager

105
Q

Professional customers

A

+390 trades/day, get special discount 3-25%; Special notation of “W” instead of “C” - retail customer - on their orders;

106
Q

SEC Rule 17a-3

A

Covers required information and records held for options traders.

107
Q

Must provide new account info to customer within ___ days

A

30

108
Q

Must Reconfirm Account Info every ___ months

A

36

109
Q

Limited trading Authorization

A

But and Sell orders can be entered but no funds can be withdrawn

110
Q

Trade considered “Discretionary”

A

If more than price and time are selected; Size and/or security chosen by broker

111
Q

Verbal Discretion for…

A

Only price and time, only good for that day

112
Q

Discretionary order tickets retained for ___ years

A

3

113
Q

ROP Must Keep records of…

A

Customer background and financials and 6 months of prior statements kept in Branch AND Supervisory location

114
Q

Definition of “Sales Literature”

A

Communication sent to more than 25 existing or prospective clients; requires advance approval

115
Q

“Promptly” definition

A

Deliver (i.e. trade confirms) within no less than the business day following trading

116
Q

Margin Deposit for Credit Spread

A

Difference in strike prices less the net credit from premiums received

117
Q

Margin deposit for debit spreads

A

Net Premium paid - this is the maximum potential loss

Series 9 - Self Study 2021 (3 decks)

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