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Series 9 > Unit 3: Multiple Option Strategies > Flashcards

Unit 3: Multiple Option Strategies Flashcards

1
Q

spread

A

purchase of one option and sale of another option of the same class (ex: call spread and put spread)

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2
Q

call spread

A

long call and short call

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3
Q

put spread

A

long put and short put

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4
Q

price spread (vertical spread)

A

only difference is strike price

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5
Q

time spread (calendar/horizontal spread)

A

only difference is expiration date

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6
Q

diagnol spread

A

difference in both strike price and expiration date

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7
Q

Spreads - Bulls buy

A

calls and call spreads

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8
Q

Spreads - Bears buy

A

puts and put spreads

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9
Q

Spreads - Bulls sell

A

puts and put spreads

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10
Q

Spreads - Bears sell

A

calls and call spreads

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11
Q

net credit

A

opening transactions result in money flowing into account (sold the spread)

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12
Q

net debit

A

opening transactions result in money flowing out of account (bought the spread)

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13
Q

Bull spreads

A

Debit call spreads

Credit put spreads

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14
Q

Bear spreads

A

Debit put spreads

Credit call spreads

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15
Q

If no premiums are shown, highest premium will be

A

calls with lower strike price

puts with higher strike price

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16
Q

Debit call spreads (long call spreads)

A

Buys the call with the lower strike price and sells the call with the higher strike price

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17
Q

Debit put spreads (long put spreads)

A

Buys the put with the higher strike price and sells the put with the lower strike price

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18
Q

Credit call spreads (short call spreads)

A

Buys the call with the higher strike price and sells the call with the lower strike price

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19
Q

Credit put spreads (short put spreads)

A

Buys the put with lower strike price and sells the put with the higher strike price

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20
Q

spread

A

difference between the premium of the two options

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21
Q

Credit spreads - maximum gain

A

initial credit

22
Q

Credit spreads - maximum loss

A

difference between strike prices minus the credit

23
Q

Debit spreads - maximum gain

A

difference between strike prices minus the debit

24
Q

Debit spreads - maximum loss

A

initial debit

25
Q

Call spreads - breakeven

A

CAL (calls add to lower) - add the net premium (debit or credit) to the lower strike price

26
Q

Put spreads - breakeven

A

PSH (puts subtract from the higher) - subtract the net premium (debit or credit) from the higher strike price

27
Q

Debit spreads profit

A

when both contracts are exercised

28
Q

Credit spreads profit

A

when both contracts expire unexercised

29
Q

straddle

A

purchase of a call and put or sell of a call and a put for same underlying security, strike price, and expiration

30
Q

long straddle

A

purchase of a call and a put

31
Q

short straddle

A

sale of a call and a put

32
Q

long straddle objectives

A

objectives: expects price to be volatile but not sure which direction; not profitable in a stable market

33
Q

long straddle - max gain

34
Q

long straddle - max loss

A

combined premiums paid

35
Q

long straddle - breakeven

A

2 breakeven points (one above strike price and one below strike price

Breakeven occurs when stock price is equal to strike price plus or minus combined premiums. Investor makes money if stock price is above or below breakeven points

36
Q

short straddle objectives

A

objectives: expects stock price will not change much and will not move outside breakeven points

37
Q

short straddle - max gain

A

combined premiums paid

38
Q

short straddle - max loss

39
Q

short straddle - breakeven

A

2 breakeven points (one above strike price and one below strike price

Breakeven occurs when stock price is equal to strike price plus or minus combined premiums. Investor makes money if stock price is in between breakeven points

40
Q

Long stock/short straddle

A

To generate income in flat market, investor can buy stock and write an at-the-money straddle. If stock doesn’t move, both options expire and investor keeps premium

41
Q

combination

A

purchase of a call and put or sell of a call and a put for same underlying security, but have different strike price and/or expiration date

42
Q

long combination

A

purchase of a call and put on same stock with different strike prices and/or expirations

43
Q

short combination

A

sale of call and put on same stock with different strike prices and/or expirations

44
Q

long combination objectives

A

long combinations can be used instead of long straddles when a sharp movement in stock price is expected

45
Q

long combination - MG/ML/BE

A

Max gain - unlimited
Max Loss - combined premiums
Breakevens - premium + call strike price; premium - call strike price (makes money outside breakeven points)

46
Q

short combination objectives

A

short combinations can be used instead of short straddles when no movement is expected in the market; wants options to expire in order to collect premium

47
Q

short combination - MG/ML/BE

A

Max gain - combined premiums
Max Loss - unlimited
Breakevens - premium + call strike price; premium - call strike price (makes money when within breakeven points)

48
Q

strangles

A

type of combination that can be long or short. An out of the money combination; good strategy if customer thinks there will be a large movement in near future but uncertain which way movement will be

49
Q

Ratio call writing

A

also known as variable hedging; covered and uncovered writing
ex: owns 100 XYZ, writes 2 call contracts

objective is to increase premium income
Max gain - premiums received
Max loss - unlimited

50
Q

Ratio put writing

A

the sale of more options than are purchased

51
Q

Ratio call writing

A

writing more calls than are being bought

52
Q

Butterfly spreads

A

an aggregation of three series of eiter puts or calls in the same underlying security, having 3 evenly spaced strike prices and expiring at the same time

Typically placed on volatile and more expensive stocks with strike prices 10,20, or 30 points apart

Series 9 (6 decks)

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