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Other investment vehicles Flashcards

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SIE Exam flashcards
1
Q

What are considered derivatives

A

futures on commodities
options

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2
Q

Are futures considered secs

A

no

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3
Q

What is an option

A

two party contract with one in the party with the right to buy or sell the underlying asset

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4
Q

The amount paid for the contract when purchased or received when sold is called

A

contract premium

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5
Q

The buyer of an option is called the

A

owner
holder
long party

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6
Q

Buyers of an option risk

A

losing the premium if the opt expires worthless

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7
Q

On the buyers side, whats the process of buying and selling an option called

A

opening purchase
closing sale

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8
Q

The seller of an option is called

A

writer
short party

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9
Q

On the sellers side, whats the process of buying and selling an option called

A

opening sale
closing purchase

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10
Q

What are the types of option contracts

A

calls
puts

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11
Q

combined with purchase or sale, what are the 4 basic trans of options

A

buy calls
sell calls
buy puts
sell puts

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12
Q

What do the buyers of calls want

A

price to rise above strike

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13
Q

what do sellers of calls want and why

A

price to drop below or stay at strike to keep the premium when contract exps

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14
Q

what do buyers of puts want

A

price to fall below strike

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15
Q

what do sellers of puts wan t

A

price to be at or above strike

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16
Q

What are the market attitudes of the 4 options trans

A

buy calls bullish
sell calls bearish
buy puts bearish
sell puts bullish

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17
Q

Whats in the money for calls and puts

A

the buyers can make money by exer

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18
Q

Whats out of the money for calls and put s

A

seller will keep the premium if contract exps

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19
Q

Whats intrinsic value for options

A

buyers are in the money
= to the amount the contract is in the money

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20
Q

Whats parity for options

A

the premium = intrinsic val

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21
Q

Whats the formula for options premiums

A

intrinsic val + time val

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22
Q

What factors go into time val

A

time to expiration & volatility

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23
Q

Whats breakeven for calls

A

greater than strike + premium

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24
Q

Whats the max loss for buyers of options

A

loss of premium

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25
Q

Whats the max gain of buyers of option s

A

infinity for calls
difference between strike - premium to zero for puts

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26
Q

Main diff between equity and non equity options

A

contract size
delivery
exercise standards

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27
Q

Index opts are usu given what mult

A

100$

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28
Q

How to calc an index opts cost

A

premium X 100

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29
Q

How to calc total dollar val of the index

A

strike X 100

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30
Q

index opts exers settle when

A

T+1

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31
Q

equity opts exers settle when

A

T+2

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32
Q

When do index opts trading close

A

4:15 broad based
4 narrow based

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33
Q

What are the delivery rlues for index fund opts

A

If exer, cash delivery tomorrow

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34
Q

Consideration for what amount the writer needs to pay when the opt is exercised in the money

A

amount = intrinsic val based on closing price of the index, not at the time of exer

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35
Q

When do opts exp

A

third friday of the expiration month

36
Q

Buying or selling (trading) opts for both equity and index settle

A

t+1

37
Q

How are index opts commonly used

A

to hedge potential losses by buying puts

38
Q

All yield based options are exercised

A

european style

39
Q

When do currency options exp, settle and exercise

A

same as equity opts
settle t+1
exer t+1
exchange listed are european only

40
Q

What currency opt would an exporter usu buy and why

A

buy puts bec of fear of the foreign currency dropping

41
Q

What currency opt would an importer usu buy and why

A

buy calls
bec fear of foreign currency rising

42
Q

diff between american and european stlye exer rules for opts

A

american exer whenever you want
euro only on exp day

43
Q

which opts are american and which are euro style exer

A

equity and index opts american
currency and yield opts euro

44
Q

Whats the formula to breakeven on protective putss

A

stock price rises enough to cover the premium paid

45
Q

Whats the formula for the breakeven on a protective call

A

stock price falls enough to cover the premium paid

46
Q

What selling positions in opts has unlimited risk and why

A

selling calls bec the stock can rise to infinity

47
Q

What is a covered short opt contract

A

the writer already has the cash or stock to pay the exer

48
Q

What are the 4 scenarios of a covered call opt

A

Im long a sto and I hedge my position buy writing (selling) call opts 2 dollars (thepremium) to buy the stock from me at 35 instead of the current 30 its at
1. price drops so the owner of the option I sold doesnt exer, I keep the premium which offsets the loss of value in my long sto position
2. price stay the same, val of the long sto posit didnt change, and the buyer doesnt exer because why would he buy the sto at 35 from me when he could buy it at 30 on the market, so I keep the premium
3. price rises a little but not past 35, again why would they exer when cheaper price on the market than the opt contract, so I keep the premium and the sto val gain
4. sto price shoots up to 40 and they exer, causing my gains to be blunted at 5/per inst of 10

49
Q

What are key considerations when making covered call options

A

picking a good stock is still highly important bec loss in the sto val can greatly offset the premium amount gain in the opt

50
Q

Who regs adding opts trading to a customer acc

A

OCC and CBOE

51
Q

What needs to happen before an account can opts trade

A

an opt disclosure document and the registered opts principal of the firm needs to confirm

52
Q

What needs to be returned within 15 days of an accs opts trading aproval

A

customer needs to return the signed opts agreement

53
Q

Opts will exer automatically if

A

in the money by at least 1 cent unless told otherwise

54
Q

Whats the proof of ownership for opts

A

the trade confirmation

55
Q

What are some examples of municipal fund secs

A

Section 529 plans
local gov investment pools
Achieving a better life accs

56
Q

What do the diff types of muni fund secs have in common

A

gov sponsored

57
Q

What is a 529 plan

A

savings account for tuition of k-12 and or college
10k per year for k-12
tax free on gains if spent on tuition/qual expenses

58
Q

considerations for 529 plans on how the money can be handled

A

if spent on non qual expenses, 10% penalty
transfer to a fam memb of the bene is allowed without penalty
if scholarship, able to pull that amount out without the penalty but still pay tax on gains

59
Q

Who are the investors of local gov investment pools

A

other gov agencies

60
Q

What are achieve a better life accs

A

tax advataged savings acc for disabled

61
Q

criteria for having an ABLE acc

A

onset of disability was under 26
receiving benefits from SS insurance

62
Q

tax consideration for ABLE accs

A

contributions are after tax
income earned from the acc is non tax

63
Q

Limited partnerships (LPs) are considered

A

Direct participation programs

64
Q

Considereation for LPs as a recommendation

A

highly illiquid

65
Q

general partners cant what

A

compete personally
borrow from the partnership
commingle fund and personal funds

66
Q

What the dissollution process for LPs

A

secured lenders
other creditors
LPs
GPs

67
Q

What are some deductions that DPPs like a LP can use

A

depreciation
depletion of nat resources
accelerated depreciation like computers
intangible drilling costs

68
Q

Passive losses in a LP cant be used to

A

reduce ordinary income for taxes only passive income

69
Q

What are the two main risks of LPs

A

Lack of liquidity
changes in tax benefits bec of audits

70
Q

Hedge funds are often organized as

A

LPs

71
Q

what do REITs hold

A

commercial prop and or mortgages of commercial prop

72
Q

What are the subchapter M rules for REITs

A

75% of income from RE
90% of net investment income distributed

73
Q

Do Reits have to be registered or listed

A

no

74
Q

Are REITs investment comps

A

no

75
Q

How does ownership work with REITs

A

undivideed interest of the pool of investment

76
Q

How do REITs handle gains and losses and how does that affect their classification

A

do not pass through losses so not a DPP

77
Q

ETFs are considered what kind of sec

A

equity

78
Q

What are ETFs similar to and why

A

index mut funds bec they can choose to mimic a particular index

79
Q

Advantages of ETFs from index mut funds

A

trades secondary
can be bought with lev and shorted
usu less fees and taxes

80
Q

Would an ETF or mut fund be better for a day trader and why

A

ETF bec a mut fund only prices the shares at end of the day

81
Q

How are ETFs diff from mut index funds

A

trades secondary
can be bought w/ lev or shorted

82
Q

What are the disadvs of ETFs vs mut funds

A

commissions of trades
over trading
market influences on price so could sell for less than NAV

83
Q

What are ETNs

A

unsecured debt secs made by banks or financial institutions

84
Q

How is money made with ETNs

A

price of the index rises by maturity bec no interest

85
Q

considerations for risk of ETNs

A

backed by faith
limited issue sizes so limited supp so might pay a premium

86
Q

REITs are taxed as a

A

conduit

87
Q
A

SIE (17 decks)

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