She chapter 2 pt 2 Flashcards
short-term unsecured promissory notes issued by companies. Used to raised cash to finance accounts receivable and seasonal inventory gluts. Maturities range from 1 to 270 days
commercial paper
direct short term debt obligations of the us government. Issued weekly with maturities 4 weeks, 13, 26 and at times 52
treasury bills
though t notes and t bonds are issued with longer maturities than t bills, once the notes and bonds have only one year left to maturity they are considered
money market instruments
agreement between buyer or seller to conduct a transaction and then reverse that transaction in the future.
repurchase agreements
a dealer agrees to buy securities from an investor and sell them back at a higher price
reverse repurchase agreement
The federal reserve bank mandates how much money its member banks must keep on reserve at the FRB. Any deposits in excess of the required amount are known as
federal funds
why would you place money market securities in a clients portfolio
highly liquid
very safe
a good place to invest money that will be needed soon(short term)
following risk associated with money market securites
rate of return is quite low (not suitable for long term investors )
These are derivative securities. This means that they derive their value from that of an underlying instrument, such as stock, stock index, interest rate or foriegn currency
options
under rule 144 how long must the a restricted security be held before it can be sold
6 months
Purchaser or holder
long
pays premium
is in control
buyer
writer
short
receives premium
takes on obligation
seller
an investor may buy calls ( )
go long
an investor may sell calls ( )
go short
long call( )
purchase
buyers of calls want the market price of the underlying stock to
rise
short call ()
sale
writers of calls what the market price of the underlying stock to
fall or stay the same
an investor may buy puts()
go long
an investor may sell puts()
go short
long put
purchase
buyers of puts want the market price of the underlying stock to
fall
short put
sale
a call buyer is ____because he wants the market to ___
bullish, rise
a call writer is ___ because he wants the market to
bearish fall
a put buyer is ___ because he wants the market to
bearish fall
a put writer is ____ because he wants the market to
bullish rise
a call is in the money when
a call is at the money when
a call is out of the money when
the price of the stock exceeds the strike price of the call
the price of the stock equals the strike price of the call
when the price of the stock is lower than the strike price of the call
intrinsic value
is the same as the amount a contract is in the money
call has intrinsic value when
the market price of the stock is above the strike price of the call
do options ever have negative intrinsic values
no
options that are at the money or out of the money have an intrinsic value of
zero
a call option is at parity when
the premium equals intrinsic value
a put is in the money when
a put is at the money when
a put is out of the money when
when the price of the stock is lower than the strike price of the put
when the price of the stock equals the strike price of the put
when the price of the stock is higher than the strike price of the put
a put has intrinsic value when
when the market price of the stock is below the strike price of the put
a put value is at parity when
when the premium equals intrinsic value
long call buyers are bearish or bullish
bullish
by purchasing calls an investor can profit from an ____in a stocks price
increase
potential gain for call buyers is
unlimited
most a call buyer can lose is the
premium paid
call sellers(writes) are bearish or bullish
bearish
by writing call, an investor can profit
if the stock price falls
call writers max gain is
premium they received
call writers max loss
unlimited
put buyers are bearish or bullish
bearish
by purchasing puts, an investor can profit from a
decrease in a stocks price
the most a put buyer can lose is the
premium paid
put sellers(writers) bearish or bullish
bullish
a put writers maximum gain is the
premium recieved
a put writers max loss is the
put strikes price- the premium recieved
the clearing agent for listed options contracts.
Primary functions are to standardize, guarantee the performance of and issue option contracts
options clearing corporation
listed options trade from
9:30- 4:00pm et
listed options settle on
the next business day after the trade
listed options expire on
the third friday of the experation month at 11:59 pm
listed options can be exercised by
the owner from the time of purchase until they expire
any contract that is in the money by at least .01 will be
exercised automatically at expiration for the holder unless the holder gives a do not exercises instruction
when occ receives an exercise notice they
assign the exercise notice to a short broker dealer
the occ assigns exercises notices to short broker dealers on a
random basis
options contracts are traded with or without a certificate
without
an investors proof of ownership is the
trade confirmation
the owner of a call(party long the contract) has
the right to buy the stock at the strike price
the owner of a put(party long the contract)
has the right to sell the stock at the strike price
only owners of options contracts, those who are ___ in the contracts have the right to exercise them
long
writers of contracts, those who are ___the contracts, will be assigned to fulfill their obligation to perform: ether sell, if short a call, or buy if long a put
short
call or put buyers can exercise a contract any time before expiration if the contract is a
american style option
can be exercised on the expiration day only
european
the ___must be provided at or before the time the account approval
occ options disclosure document
all options accounts must untimately be
approved by a firms registered options principal
15 days after account approval, customer must
return signed options agreement
if the contract is covered
the writer already owns the underlying security
uncovered(naked)
writer does not own the underlying security
more risky naked on covered
naked
corporation or trust that pools investors money and then invests that money in securities on their behalf
investment company
investment companies are subject to regulations regarding how their shares are sold to the public, they are regulated by who
investment company act of 1940
classifies investment companies into 3 broad types
face amount certificate companies
unit investment trusts
management investment companies
investment company act of 1940
have sub accounts that are defined as either units or open-end management investment companies
variable annuaties
a contract between an investor and an issuer in which the issuer guarentees payment of a stated(face amount) sum to the investor at some set date in the future
face amount certificates
an investment company organized under a trust indenture
do not have board of directors (they have trustees)
unit investment trust
redeemable interests also known as
units or shares of beneficial interest
