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28 Cards in this Set

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hedging
taking opposite positions to reduce risk.
options
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.
leverage
magnification of the potential return on an investment. ROI.
CBOE
chicago board options exchange.

A secondary market for the purchase and sale of call and put options.
expiration date
the date by which an option must be exercised.
intrinsic value
what an option is worth as stock.
exercise (strike) price
the price at which the investor may buy or sell stock through an option.
premium
the market price of an option.
an option is "in the money"
if the stock is selling for a price greater than the per-share exercise price.
an option is "at the money"
when the common stock is selling for a price that equals the strike price.
an option is "out of the money"
when the price of the stock is less than the strike price;

the option has no intrinsic value.
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
the amount by which an option's price exceeds the option's intrinsic value.
call option
an option sold by an individual that entitles the buyer to purchase stock at a specified price within a specified time period.
put option
an option to sell stock at a specified price within a specified time period.
covered option writing
selling an option for which the seller owns the securities.
naked option writing
the selling (i.e., writing) of an option without owning the underlying security.
arbitrage
simultaneous purchase and sale to take advantage of price differences in different markets.
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.
Note:
stock index options
rights to buy and sell based on an aggregate measure of stock prices.
warrant
an option issued by a company to buy its stock at a specified price within a specified time period.
right
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.