Unit 2 8 Options Flashcards
What is an Option?
An option is a derivative. It derives it’s value from an underlying security.
How many types of Options are there?
A Call Option
A Put Option
What us a Strike Price?
Each Option has a Strike Price also known a the Exercise Price - the price that you can either exercise the Option to buy the stock for (that Strike Price) or sell the stock for that Strike Price.
What is Contract Size?
How many shares you can buy or sell when you exercise an Option. Unless told otherwise, the contract size is 100 shares.
What is the Exercise Price as regards Options?
The same as Strike Price. These are interchangeable.
What is Contract Value?
When you buy the Option contract, the Put or Call, the contract has a value that is known as the Premium.
The Premium has 2 parts = time value + intrinsic value.
What is Intrinsic Value?
If an Option is In-the-Money, it has Intrinsic Value
If an Options premium is equal to the Intrinsic Value, that Option is said to be At Parity.
What is Parity (as regards an Option)?
If an Options premium is equal to the Intrinsic Value, that Option is said to be at Parity.
If an Option is not In-the-Money, it can be…?
Out-of-the-Money or At-the-Money
What are the Strategies when it comes to Options?
Some Option Positions are Bullish, some Option Positions are Bearish.
What can one do with a Call Option?
You can buy that option. You can go LONG (Bullish)
