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28 Cards in this Set
- Front
- Back
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hedging
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taking opposite positions to reduce risk.
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options
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in the securities markets, an option is the right to buy or sell stock at a specified price within a specified time period.
options are often referred to as derivative securities: calls, puts, warrants. |
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leverage
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magnification of the potential return on an investment. ROI.
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CBOE
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chicago board options exchange.
A secondary market for the purchase and sale of call and put options. |
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expiration date
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the date by which an option must be exercised.
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intrinsic value
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what an option is worth as stock.
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exercise (strike) price
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the price at which the investor may buy or sell stock through an option.
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premium
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the market price of an option.
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an option is "in the money"
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if the stock is selling for a price greater than the per-share exercise price.
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an option is "at the money"
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when the common stock is selling for a price that equals the strike price.
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an option is "out of the money"
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when the price of the stock is less than the strike price;
the option has no intrinsic value. |
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Module 8: Mayo Questions
Question 1: Define the word option as it applies to securities and differentiate between an option's market value and its intrinsic value. |
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Module 8: Mayo Questions
Question 2: Identify the risks associated with purchasing an option and the factors affecting an option's time premium. |
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Module 8: Mayo Questions
Question 3: Differentiate the profit and loss from writing a covered call option versus a naked call option. |
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Module 8: Mayo Questions
Question 4: Explain the relationship between the price of a stock and a put option. |
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Module 8: Mayo Questions
Question 5: Compare buying a put option with selling short. |
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Module 8: Mayo Questions
Question 6: Identify the advantages offered by stock index options. |
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Module 8: Mayo Questions
Question 7: Differentiate warrants and rights offerings from calls. |
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time premium
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the amount by which an option's price exceeds the option's intrinsic value.
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call option
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an option sold by an individual that entitles the buyer to purchase stock at a specified price within a specified time period.
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put option
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an option to sell stock at a specified price within a specified time period.
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covered option writing
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selling an option for which the seller owns the securities.
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naked option writing
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the selling (i.e., writing) of an option without owning the underlying security.
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arbitrage
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simultaneous purchase and sale to take advantage of price differences in different markets.
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Note: Put and Call options generally trade in units of 100 shares. But, the reporting of option prices in the financial press is on a per-share basis.
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Note:
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stock index options
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rights to buy and sell based on an aggregate measure of stock prices.
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warrant
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an option issued by a company to buy its stock at a specified price within a specified time period.
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right
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an option given to stockholders to buy additional shares at a specified price durning a specified time period before the offer is made to the general public.
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