Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Securities Industry Essentials > Unit 3: Derivatives > Flashcards

Unit 3: Derivatives Flashcards

You may prefer our related Brainscape-certified flashcards:
SIE Exam flashcards
1
Q

Derivative

A

contract that derives its value from an underlying asset

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Long call

A

> right to buy 100 shares of a stock at the strike price before expiration of the contract
call buyer is bullish (hope CMV of shares will rise so they can buy them low)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Short call

A

> obligation to sell 100 shares of a stock at the strike price when contract is exercised
call seller is bearish (hope CMV of shares will fall so they sell them high)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Long put

A

> right to sell 100 shares of a stock at the strike price before expiration of contract
put buyer is bearish (hope CMV of shares will fall so they sell them high)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Short put

A

> obligation to buy 100 shares of a stock at the strike price when contract is exercised
put seller is bullish (hope CMV of shares will rise so they buy them low)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

In the money call

A

> CMV of stock exceeds strike price

>call will be exercised by buyer, they can buy low

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Out of the money call

A

> CMV of stock is lower than strike price
call will not be exercised by buyer
seller will keep premium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Intrinsic value

A

> the amount a contract is in the money

>always positive or zero

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Parity

A

when premium of option equals intrinsic value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

In the money put

A

> CMV of stock is lower than strike price

>call will be exercised by buyer, they can sell high

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Out of the money put

A

> CMV of stock is higher than strike price
buyer will not exercise option
seller keeps premium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Premium formula

A

intrinsic value + time value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Option

A

contract between buyer and seller in which the buyer has right to buy or sell underlying assets and the seller is obligated to fulfill the contract if exercised

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Equity option

A

option contract with stock as underlying asset

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Nonequity option

A

option contract with underlying asset other than stock

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Index option

A

> option contract with index fund as underlying asset
use multiplier of $100
settle T+1 in cash

17
Q

Long call breakeven point

A

strike price + premium

18
Q

Long call maximum gain

A

unlimited, because CMV of stock could rise to infinity above strike price

19
Q

Long call maximum loss

A

premium (if long call is out of the money buyer will not exercise)

20
Q

Short call breakeven point

A

strike price + premium (if contract is exercised seller would need to buy stock and lose premium at min.)

21
Q

Short call maximum gain

A

premium (only $ possible for seller to make)

22
Q

Short call maximum loss

A

> unlimited, because CMV could rise to infinity over strike price
seller would need to buy shares off market before selling them to buyer at strike price

23
Q

Long put breakeven point

A

strike price - premium

24
Q

Long put maximum gain

A

strike price - premium (same as breakeven because strike price will never change)

25
Q

Long put maximum loss

A

premium (because long put is in the traditional seller’s position)

26
Q

Short put breakeven point

A

strike price - premium

27
Q

Short put maximum gain

A

premium (only $ possible for seller to make)

28
Q

Short put maximum loss

A

strike price - premium (same as breakeven because strike price will never change)

29
Q

Protective put

A

> Long stock, long put

>bullish investor can lock in min. sell price if CMV of shares drop

30
Q

Protective call

A

> Short stock, buy call

>bearish investor can lock in low buy price if CMV of shares increases

31
Q

Covered put

A

Writer of option already has cash available to purchase shares from buyer if they exercise contract

32
Q

Uncovered put

A

> Writer of option does not have cash available to purchase shares from buyer if they exercise contract
Needs to find cash from elsewhere

33
Q

Covered call

A

Writer of option already owns shares to be delivered to buyer if they exercise contract

34
Q

Uncovered call

A

> Writer of option does not own shares to be delivered to buyer if they exercise contract
Will need to buy shares at high CMV to sell to buyer
Unlimited risk, CMV could be infinity

35
Q

Options trading account set-up process

A

1) rep. determines options are suitable for investor
2) rep. shares Options Disclosure Document w/ investor
3) account is approved for options trading by registered options official
4) options trades entered
5) signed options agreement must be returned within 15 days of account approval

Securities Industry Essentials (4 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions