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Other investment vehicles 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
Whats the max gain of buyers of option s
infinity for calls difference between strike - premium to zero for puts
26
Main diff between equity and non equity options
contract size delivery exercise standards
27
Index opts are usu given what mult
100$
28
How to calc an index opts cost
premium X 100
29
How to calc total dollar val of the index
strike X 100
30
index opts exers settle when
T+1
31
equity opts exers settle when
T+2
32
When do index opts trading close
4:15 broad based 4 narrow based
33
What are the delivery rlues for index fund opts
If exer, cash delivery tomorrow
34
Consideration for what amount the writer needs to pay when the opt is exercised in the money
amount = intrinsic val based on closing price of the index, not at the time of exer
35
When do opts exp
third friday of the expiration month
36
Buying or selling (trading) opts for both equity and index settle
t+1
37
How are index opts commonly used
to hedge potential losses by buying puts
38
All yield based options are exercised
european style
39
When do currency options exp, settle and exercise
same as equity opts settle t+1 exer t+1 exchange listed are european only
40
What currency opt would an exporter usu buy and why
buy puts bec of fear of the foreign currency dropping
41
What currency opt would an importer usu buy and why
buy calls bec fear of foreign currency rising
42
diff between american and european stlye exer rules for opts
american exer whenever you want euro only on exp day
43
which opts are american and which are euro style exer
equity and index opts american currency and yield opts euro
44
Whats the formula to breakeven on protective putss
stock price rises enough to cover the premium paid
45
Whats the formula for the breakeven on a protective call
stock price falls enough to cover the premium paid
46
What selling positions in opts has unlimited risk and why
selling calls bec the stock can rise to infinity
47
What is a covered short opt contract
the writer already has the cash or stock to pay the exer
48
What are the 4 scenarios of a covered call opt
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
What are key considerations when making covered call options
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
Who regs adding opts trading to a customer acc
OCC and CBOE
51
What needs to happen before an account can opts trade
an opt disclosure document and the registered opts principal of the firm needs to confirm
52
What needs to be returned within 15 days of an accs opts trading aproval
customer needs to return the signed opts agreement
53
Opts will exer automatically if
in the money by at least 1 cent unless told otherwise
54
Whats the proof of ownership for opts
the trade confirmation
55
What are some examples of municipal fund secs
Section 529 plans local gov investment pools Achieving a better life accs
56
What do the diff types of muni fund secs have in common
gov sponsored
57
What is a 529 plan
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
considerations for 529 plans on how the money can be handled
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
Who are the investors of local gov investment pools
other gov agencies
60
What are achieve a better life accs
tax advataged savings acc for disabled
61
criteria for having an ABLE acc
onset of disability was under 26 receiving benefits from SS insurance
62
tax consideration for ABLE accs
contributions are after tax income earned from the acc is non tax
63
Limited partnerships (LPs) are considered
Direct participation programs
64
Considereation for LPs as a recommendation
highly illiquid
65
general partners cant what
compete personally borrow from the partnership commingle fund and personal funds
66
What the dissollution process for LPs
secured lenders other creditors LPs GPs
67
What are some deductions that DPPs like a LP can use
depreciation depletion of nat resources accelerated depreciation like computers intangible drilling costs
68
Passive losses in a LP cant be used to
reduce ordinary income for taxes only passive income
69
What are the two main risks of LPs
Lack of liquidity changes in tax benefits bec of audits
70
Hedge funds are often organized as
LPs
71
what do REITs hold
commercial prop and or mortgages of commercial prop
72
What are the subchapter M rules for REITs
75% of income from RE 90% of net investment income distributed
73
Do Reits have to be registered or listed
no
74
Are REITs investment comps
no
75
How does ownership work with REITs
undivideed interest of the pool of investment
76
How do REITs handle gains and losses and how does that affect their classification
do not pass through losses so not a DPP
77
ETFs are considered what kind of sec
equity
78
What are ETFs similar to and why
index mut funds bec they can choose to mimic a particular index
79
Advantages of ETFs from index mut funds
trades secondary can be bought with lev and shorted usu less fees and taxes
80
Would an ETF or mut fund be better for a day trader and why
ETF bec a mut fund only prices the shares at end of the day
81
How are ETFs diff from mut index funds
trades secondary can be bought w/ lev or shorted
82
What are the disadvs of ETFs vs mut funds
commissions of trades over trading market influences on price so could sell for less than NAV
83
What are ETNs
unsecured debt secs made by banks or financial institutions
84
How is money made with ETNs
price of the index rises by maturity bec no interest
85
considerations for risk of ETNs
backed by faith limited issue sizes so limited supp so might pay a premium
86
REITs are taxed as a
conduit
87

SIE (17 decks)

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