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40 Cards in this Set
- Front
- Back
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Call
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The right to buy a specified number of shares of the underlying instrument at the strike price.
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Put
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The right to sell a specified number of shares of the underlying instrument at the strike price.
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Option
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A contract between a buyer and a seller (writer).
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Underlying instrument
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A commodity, foreign currency, futures contract, index, or stock.
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Strike price
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The price specified in the option contract at which the underlying instrument is bought or sold if the option is exercised.
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Expiration date
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The date after which the option contract ceases to exist.
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Exercise
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To invoke the right contained in the option contract.
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Assignment
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The option writer has been selected in an impartial manner and must fulfill the terms of the contract.
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Premium
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The price an option buyer pays and an option writer receives.
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Open interest
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The number of contracts in existence.
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Long option position
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The purchase of an option, in which the owner has some kind of right.
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Short option position
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The writing of an option, in which the writer has some kind of obligation.
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Opening purchase transaction
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Creating a long position that did not exist before the transaction.
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Opening writing transaction
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Creating a short position that did not exist before the transaction.
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Closing purchase transaction
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Purchasing an option that offsets an existing short position.
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Closing writing transaction
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Writing an option to offset an existing long position.
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Option types
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Call, put.
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In-the-money
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The strike price is equal to the underlying price.
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At-the-money (Calls)
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The strike price is below the underlying price.
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At-the-money (Puts)
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The strike price is above the underlying price.
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Out-of-the-money (Calls)
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The strike price is above the underlying price.
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Out-of-the-money (Puts)
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The strike price is below the underlying price.
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Intrinsic value
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The amount by which the option is in-the-money.
If the option is out-of-the-money, the intrinsic value is 0. |
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Time value
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Premium - intrinsic value
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Parity
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Premium = intrinsic value
Time value = 0 |
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Payoff profile: long call
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Reward: underlying - strike - premium paid; unlimited
Risk: premium paid Graph: backward L |
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Payoff profile: short call
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Reward: premium received
Risk: underlying - strike + premium received; unlimited Graph: upside-down backward L |
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Payoff profile: long put
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Reward: strike - premium paid; substantial
Risk: premium paid Graph: L |
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Payoff profile: short put
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Reward: premium received
Risk: strike - premium received; substantial Graph: upside-down L |
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Rolling down
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Moving from higher strike to lower strike.
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Rolling up
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Moving from lower strike to higher strike.
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Rolling out
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Moving from closer expiration to further expiration.
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Index
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A measurement of the change in value of a group of underlying shares.
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Index option
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The right to receive or obligation to pay the in-the-money amount.
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Index multiplier
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The amount by which the quoted price of an option is multiplied to calculate the option's actual market price.
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American-style exercise
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Option may be exercised at any time prior to expiration.
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European-style exercise
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Option can only be exercised at expiration.
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PM settlement
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Closing prices of underlying are used to calculate final settlement value.
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AM settlement
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Opening prices of underlying are used to calculate final settlement value.
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Portfolio insurance
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Purchase a put, while owning the underlying;
Underlying + put |
