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113 Cards in this Set
- Front
- Back
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Buyer |
Purchaser , Holder , long, pays premium , owns the RIGHT , party in control. |
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Seller |
Writer, short , receives the premium , takes on an OBLIGATION. |
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Opening Purchase |
Buys to get in. (Long position) |
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Closing Sale |
Sell to get out. (Long position) |
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Opening sale (write) |
Sell to get in (short position) |
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Closing Purchase |
Buy to get out (short position) |
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American Style Contract |
Contract can be exercised Any time the option holder wishes. (Buyers only) |
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European Style Contract |
Contract can only be exercised at expiration( last day of trading ) |
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What is the expiration of a standard exchange listed contracts? |
9 months if purchasing an original issue , if buying a traded option expiration is 9 months from original purchase. |
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LEAPS |
Long term Equity Anticipation Securities or Series. Have up to 39 months before expiration. |
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Class |
Same type and same stock. Have different strike price and expiration. |
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Series |
Same type, same stock, same strike price , same expiration. Identical. |
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Owner of a call |
Pays a premium for right to buy stock at the stock price. |
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Seller (writer) of a Call |
Receives the premium for OBLIGATION to sell at strike price if option is exercised. |
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What is the Break Even of a Long Call? |
Strike Price + Premium = Break Even |
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Maximum gain of a LONG CALL |
UNLIMITED |
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Maximum Loss of a LONG CALL |
The PREMIUM paid |
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What is your market attitude if you are LONG a CALL? |
Bullish. |
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If you are SHORT a CALL what is your market attitude? |
bearish. |
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Breakeven of a SHORT CALL |
Strike price + premium = Break even |
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Maximum Gain for a SHORT CALL |
Premium Received |
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Maximum Loss for a SHORT CALL |
Unlimited |
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When does a call have Intrinsic Value? |
A call has intrinsic value when the CMV is ABOVE the strike price. |
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In the Money Call |
CMV > Strike Price |
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At-The-money Call |
CMV = Strike Price |
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Out-Of-The Money Call |
CMV < Strike Price |
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Intrinsic Value + Time Value = ?? (Of a call) |
Premium OR Premium - intrinsic value = Time Value |
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What is the time value of a call at expiration? |
ZERO 0 |
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Intrinsic Value |
CMV - Strike Price = Intrinsic Value Intrinsic value + time value MUST = total premium |
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Owner of a PUT |
Owner pays premium for right to SELL |
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Seller (writer) of a PUT |
Receives the premium for OBLIGATION to buy |
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What is your Market attitude if you are LONG a PUT? |
Bearish. |
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What is the Breakeven if you are LONG a PUT? |
Strike price - premium = Breakeven |
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Maximum Gain if you are LONG a PUT? |
Breakeven to 0 |
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Maximum Loss if you are LONG a PUT ? |
The premium paid. |
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What is Breakeven if you are SHORT a PUT? |
Strike price - premium = Breakeven |
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What is your market attitude if you are SHORT a PUT? |
bullish |
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What is your Maximum Gain if you are SHORT a PUT? |
The Premium you Received |
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What is the Maximum Loss if you are SHORT a PUT? |
Breakeven to 0 |
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When does a PUT have intrinsic value? |
When CMV is BELOW strike price |
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Out of the money Put |
CMV > Strike Price |
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In the money PUT |
CMV < Strike Price |
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Hedge Position |
Using an option contract to hedge your risk in the stock. ALWAYS a stock and an option position. |
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For Protection would you buy or sell an option? |
BUY |
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For INCOME would you buy or sell an option? |
SELL |
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If you are LONG stock , what would be the appropriate Hedge Position? |
BUY a PUT (most protection) SELL a CALL(limited protection, but premium income) |
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LONG Stock , LONG PUT - Breakeven |
Stock price + premium = Breakeven |
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LONG Stock , LONG PUT - Breakeven |
Stock price + premium = Breakeven |
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Long stock , LONG PUT - Maximum Gain |
UNLIMITED |
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LONG stock , LONG PUT -Maximum Loss |
Stock Price - Strike Price + premium |
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What is the purpose of a LONG STOCK, LONG PUT hedge Position? |
Protects against price Decline Enjoy big price increase |
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LONG Stock , SHORT CALL- Breakeven |
Stock price - premium = stock price |
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LONG Stock , SHORT CALL- Breakeven |
Stock price - premium = stock price |
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LONG stock , SHORT CALL - Maximum Loss |
Breakeven |
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LONG STOCK , SHORT CALL - Maximum Gain |
Strike Price - Stock Price + Premium |
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What is the purpose of hedging a LONG stock with a SHORT CALL? |
Additional Income to increase overall return Limited price decline protection (in the amount of the premium) |
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If you are Short Stock what is your risk? |
That the market goes up in value |
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What are appropriate positions to hedge SHORT STOCK? |
BUY a CALL ( protection) WRITE a PUT ( Income) |
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Short Stock , LONG CALL -Breakeven |
Stock price - premium = Breakeven |
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Short Stock , LONG CALL- Max Gain |
Breakeven to 0 |
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Short Stock , LONG CALL - Max Loss |
Premium + Strike Price - Stock price = max loss |
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Short Stock , SHORT PUT -Breakeven |
Stock price + Premium = Breakeven |
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Short Stock , SHORT PUT- Max Gain |
Stock Price + Premium - Strike Price |
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SHort stock , SHORT PUT - Max Loss |
UNLIMITED |
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Straddle |
Buy a Call and Buy a PuT Or sell a Call and Sell a put Same stock , same expiration , same strike price |
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Breakeven for Straddles |
straddles have 2 Breakeven points. Strike price + total premiums & Strike Price - total premiums |
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If you are LONG a STRADDLE what do you expect from the market? |
Volatility , expecting movement in stock ( up or down) |
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If you are SHORT a STRADDLE what are you expecting from the market? |
Anticipate that the stock price will not move , sit still |
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If you are LONG a STRADDLE when will you see a GAIN? |
Outside of Breakeven points Maximum Gain is unlimited |
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If you are LONG a STRADDLE when will you see a LOSS? |
In between Breakeven points Maximum Loss = total premiums |
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If you are SHORT a STRADDLE when will you see a GAIN? |
In between Breakeven points Maximum Gain = total premiums |
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If you are SHORT a STRADDLE when will you see a LOSS? |
Outside of Breakeven points Maximum Loss = unlimited |
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Call Spread |
Buying a Call & Selling a Call |
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Put Spread |
Buy a put & Sell a put |
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Price , Money , or Vertical Spread |
Different strike price only |
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Calendar , Time , or Horizontal Spread |
Different expiration only |
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Diagonal Spread |
Different Strike Price & Expiration |
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Credit Spread |
Net = money in Pocket = credit Spread |
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Debit Spread |
Net , takes money out of pocket = Debit Spread |
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What is the Maximum Gain of a CREDIT SPREAD? |
Net Credit |
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When will a CREDIT Spread be profitable? |
1) Difference in premiums NARROW 2) Both options expire |
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What do you want to see a CREDIT SPREAD do? |
NARROW |
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What do you want to see a DEBIT spread do? |
WIDEN |
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Net Credit of Call Spread |
Difference in premiums |
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Max loss of a CREDIT SPREAD |
Difference in strike prices |
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Break even for credit Call Spread |
Calls add to the lower strike price ( cals) Lowest strike price + net premium |
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Net Credit of Put Spread |
Difference of premiums |
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Max Gain of Put Spread |
Net premium |
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Max loss of Put Spread |
Difference in strike prices - net Credit |
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Breakeven of Put Spread |
Puts subtract from the HIGHER strike PSHS Higher strike price - net Credit |
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What is your market attitude if you sell a put? |
bullish |
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What is the Maximum Loss for a DEBIT SPREAD? |
Net Debit |
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What is the Maximum Gain of a DEBIT Spread? |
Strike price difference - Net Debit |
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When is a DEBIT Spread profitable? |
If the difference in premiums WIDENS Both options are EXERCISED |
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In spreads Max Gain & Max Loss are ALWAYS equal to ...? |
The difference in strike prices |
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In CALL spreads what Strike Price is Dominant? |
Lower XP is dominant |
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In PUT spreads what Strike price is dominant? |
Higher XP is Dominant. |
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What is the market attitude of a DEBIT CALL SPREAD? |
Bullish |
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What is the market Attitude in a CREDIT CALL SPREAD? |
BEARISH |
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What is your market Attitude in a DEBIT PUT SPREAD? |
Bearish |
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What is your market attitude in a CREDIT PUT SPREAD? |
BULLISH |
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In a NET Credit Spread are you selling or buying? |
Selling / bearish |
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In a Net DEBIT Spread are you buying or selling? |
BUYING/ Bullish |
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Non Equity Options |
Options that are NOT on STOCK Example - Embassies & Currencies |
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Narrow Based Index Option |
Narrow index market (example , computer technology, utilities) |
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Broad Based Index Option |
Option for broad market (ex. S&P Index , Dow Jones) |
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How are Index options settled? |
Cash settled T + 1 |
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Yield based debt options |
Value based on yield Example - 65 strike price means 6.5 yield |
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How are Foreign Currency Options Quoted? |
Quoted in Cents , except for yen quoted in 1/100th of a cent |
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What is the contract size of foreign currency contract? |
10,000 units per contract , except for yen 1,000,000 per |
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If you think foreign currency is going up against US dollar you would? |
BUY Calls or SELL Puts |
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If you think foreign currency is going to FALL against US currency you would? |
Buy calls or Sell puts |
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EPIC |
Exporters buy puts Importers buy calls |
