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50 Cards in this Set
- Front
- Back
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option |
a derivative giving the holder the right to buy or sell something for a stated price up to expiration of the contract. Puts and calls.
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premium |
the amount paid to acquire an options contract |
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strike price |
exercise price. the price at which a call or put option allows the holder to buy or sell the underlying security. |
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call
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a contract that gives the holder the right to buy something at a stated exercise price
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expiration date |
the date after which an options contract ceases to exist
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in-the-money |
a call option allowing an investor to buy the underlying stock for less than it is worth or a put option allowing an investor to sell the underlying stock for more than it is worth.
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intrinsic value |
the amount by which an option is in-the money |
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time value |
the value of an option above its intrinsic value |
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breakeven |
the price at which the underlying security is above or below the strike price of the option by the amount of the premium paid or received |
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naked call |
selling a call against securities not yet owned, leading to unlimited risk |
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LEAPS |
a long-term standardized option.
Anywhere from 9-39 months |
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hedge |
to modify the risk taken on a stock position by buying or selling options, e.g., covered call
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covered call |
a position in which an investor generates premium income by selling the rights to buy stock the investor already owns, and at a set price
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Chicago Board Options Exchange Market Volatility Index (VIX) |
a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices |
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futures contract |
a derivative contract where the underlying instrument is a commodity or a financial index
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financial futures |
futures contracts where the underlying instrument is a stock index, interest rate, etc.
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forward |
an unregulated derivative security
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counterparty risk |
the risk faced by parties to a forward contract or repurchase agreement that the other side will default
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hedge funds |
private investment partnership open to accredited investors only. Illiquid investments that generally must be held one or two years before selling. Typically charge a management fee plus the first 20% of capital gains in most cases
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accredited investors |
large institutional investors, and individuals meeting certain income or net worth requirements allowing them to participate in, for example, a private placement under Reg D of the Securities Act of 1933, or hedge funds |
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non-accredited purchaser |
investor who does not meet various SEC net worth and/or income requirements. For a Reg D private placement, accredited investors may participate, but only a limited number of non-accredited investors may purchase the issue
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funds of hedge funds |
a mutual fund that is made up of hedge funds
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private equity fund |
an alternative investment fund open to sophisticated investors only and specializing in buying out companies both public and private.
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structured products |
investment products created and sold by a financial intermediary with terms agreed to by both parties to the contract, e.g., an Exchange Traded Note
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Exchange Traded Note (ETNs) |
a type of unsecured debt security issued by a financial institution, e.g., Barclays Capital, in which returns are based upon the performance of an underlying benchmark minus fees
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Sovereign debt |
bonds issued by a national government payable in a foreign currency
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HOLDRs |
a structured product introduced by Merrill Lynch in which investors own groupings/baskets of stocks usually by industry group, e.g., pharmaceuticals or consumer staples. Similar to ETFs, only HOLDRs do not change their composition over time or track a particular index. |
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Direct Participation Program (DPP) |
a limited partnership or similar pass-through entity in which the investor receives a share of income and expenses.
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flow through |
term used for an entity that passes through a share of net income or net loss to the owners rather than being taxed as a business entity. Includes partnerships, LLCs and S-Corporations but NOT C-Corporations
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Exploratory programs |
a direct participation program that drills for oil and natural gas
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intangible drilling costs (IDCs) |
source of tax shelter for oil & gas exploratory programs; includes labor and geological surveys as opposed to equipment and other depreciated costs.
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developmental programs |
an oil or gas drilling program in an area in which reserves are known to exist
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income programs |
a direct participation program that invests in existing producing oil and/or natural gas wells
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depletion allowance |
a cost recovery system for natural resources investment programs
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raw land |
unimproved real estate providing no cash flow and no depreciation. A Speculative investment in land
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new construction |
a type of DPP in which the partnership builds and then sells housing units
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existing properties |
a direct participation program that purchases operating real estate
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equipment leasing program |
a direct participation program that leases computers, mining equipment, etc. Depreciation is a major tax-advantage of such a program
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government-assisted housing |
a type of DPP investment that typically receives tax credits from a government in exchange for providing low-income housing for the community
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limited partners (LPs) |
a person who owns a limited partnership interest. Has no managerial responsibility and is shielded from debts of - and lawsuits against - the partnership |
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general partner (GP) |
The owner of a general partnership or the manager of a limited partnership with unlimited liability and a fiduciary obligation to the limited partnerships
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partnership democracy |
term referring to a limited partnership's right to vote in certain matters of major importance
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certificate of limited partnership |
document filed by the general partner of a direct participation program with a state disclosing who the partnership is and what is does. |
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partnership agreement |
agreement governing the operation of a general or limited partnership.
Signed by all parties |
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passive income |
as opposed to "earned income," the income derived from rental properties, limited partnerships, or other enterprises in which the individual is not actively involved
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passive losses |
a loss derived from rental properties, limited partnerships, or other enterprises in which the individual is not actively involved
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If ABC trades @50, both the ABC Oct 45 calls and ABC Oct 55 calls are considered to be ____ |
in-the-money |
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if ABC trades @50, and ABC Oct 45 call's intrinsic value is |
$5 |
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if XYZ trades @50, an XYZ Oct 50 call @1 has ___ intrinsic value and ____ time value |
$0 and $1 |
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an ABC Aug 50 call @2 has a breakeven of ___ for the buyer and ___ for the seller |
$52 and $52
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