Week 2: Mechanics of options Flashcards
1
Q
What are the option positions?
A
- Long call:
- buy a call (right to buy asset)
- Long put:
- buy a put (right to sell asset)
- Short call:
- sell a call (no right to buy asset)
- Short put:
- sell a put (no right to sell asset)
2
Q
what are the expiration moth cycles?
A
- January cycle: Jan, Aprl, Jul, Oct.
- February cycle: Feb, May, Aug, Nov.
- March cycle: Mar, Jun, Sep, Dec.
3
Q
what is the expiration date?
A
- Expiration date is the Saturday immediately
following the third Friday of the expiration
month
4
Q
How is the cycle affected If expiration of current month has not yet been reached?
A
- Current month, following month, & next two
months in the cycle
5
Q
How is the cycle affected If expiration of current month has passed?
A
- Next month, next-but-one month, & next two
months in the cycle
6
Q
At the money call & put
A
- Call: ST = K,
- Put: ST = K
7
Q
in the money call &put?
A
- Call: ST > K,
- Put: ST < K
8
Q
out of the money call & put?
A
- Call: ST < K,
- Put: ST > K
9
Q
option value =?
A
- The price of an option
- also = time value + intrinsic value
10
Q
Intrinsic value =?
A
- the maximum of zero and the value the option would have if it were exercised
immediately.- Call: max(S - K, 0)
- Put: max(K - S, 0)
11
Q
Time value for American & European option?
A
- For an American option time value is positive
- For an European option time value can be
negative
12
Q
What is a option class?
A
- An option class is the set of all the options of the same type (call and put) and style (American or European) for a particular stock, index fund, or futures security (in other words having the same underlying) on a listed exchange
13
Q
What is an option series?
A
- An option series refers to all options that are identical; that is they are the same type, have the same underlying, the same expiration date and the same exercise price
14
Q
What is volume?
A
- Represents the total amount of contracts that have changed hands from buyer to seller, new or existing.
- Reflects the total number of contracts traded for a single day
15
Q
What is open interest?
A
- Open Interest is the total number of outstanding
contracts that are held by market participants at the
end of each day - Represents total number of contracts still open (haven’t been exercised)
