Options Trading

Front 1

Delta?

Back 1

The rate of change of option value with respect to changes in the underlying asset's price.

Front 2

How is delta represented?

Back 2

A number between 0.0 and 1.0 for a call and 0.0 and -1.0 for a put. Commonly presented as a percentage of the total number of shares represented by the option contract(s).

Front 3

What is the relationship between delta and the probability that a call will end in the money?

Back 3

The absolute value of delta is approximately the probability that the option will expire in-the-money. (The correct, exact calculation for the probability of an option finishing in the money is its Dual Delta, which is the first derivative of option price with respect to strike.)

Front 4

Vega?

Back 4

Vega measures sensitivity to volatility.

Front 5

How is vega expressed?

Back 5

Vega is typically expressed as the amount of money, per underlying share the option's value will gain or lose as volatility rises or falls by 1%

Front 6

Theta?

Back 6

measures sensitivity of the value of an option to the passage of time (see Option time value).

Front 7

How is theta measured?

Back 7

the amount of money, per share of the underlying that the option loses in one day

Front 8

Intrinsic value?

Back 8

The intrinsic value for an in-the-money option is calculated as the absolute value of the difference between the current price (S) of the underlying and the strike price (K) of the option, floored to zero.

Front 9

Covered Call

Back 9

Call option for which the seller/buyer owns the underlying stock.

Front 10

Naked Put

Back 10

TBD

Front 11

Calendar Call

Back 11

TBD

Front 12

Long Call

Back 12

TBD

Front 13

Bear Call Credit

Back 13

TBD

Front 14

Naked Call

Back 14

TBD

Front 15

Iron Condor

Back 15

TBD

Front 16

Long Put

Back 16

TBD

Front 17

Collar

Back 17

TBD

Front 18

Covered Combination

Back 18

TBD

Front 19

Bull Call Debit

Back 19

TBD

Front 20

Calendar Put

Back 20

TBD

Front 21

Iron Butterfly

Back 21

TBD

Front 22

Bear Put Debit

Back 22

TBD

Front 23

Covered Put

Back 23

A put option for which the seller/buyer owns the underlying stock.

Front 24

Long Straddle

Back 24

Buy ATM calls and ATM puts (same #; same strike, same exp. date)
Expect big move up or down, or increase in IV
Risk: $ of options
Reward: unlimited
(When stock is near a strike price.)

Front 25

Short Straddle

Back 25

TBD

Front 26

Custom Spreads

Back 26

TBD

Front 27

Married Call

Back 27

TBD

Front 28

Married Put

Back 28

TBD

Front 29

Short Collar

Back 29

TBD

Front 30

What is a call option?

Back 30

A contract that gives the owner the right (but not the obligation) to buy the underlying stock at a specific price (strike price) by a specific date (expiration date).

Front 31

What is a put option?

Back 31

A contract that gives the owner the right (but not the obligation) to sell the underlying stock at a specific price (strike price) by a specific date (expiration date.)

Front 32

What happens when I sell a call?

Back 32

I receive a premium or credit (call value). The buyer of the call then has the right (but not the obligation) to exercise (buy) the underlying stock from me at the strike price up to the expiration date regardless of what the stock is selling for on the market. I can also buy back the call.

Front 33

What happens when I buy a call?

Back 33

I pay a premium or debit (put value). I have the right (but not the obligation) to buy the underlying stock at the strike price up to the expiration date. I can also sell back the call.

Front 34

What happens when I sell a put?

Back 34

I receive a premium or credit (put value). I am the obliged to buy the underlying stock at the strike price up to the expiration date regardless of what the stock is trading for. If I do not own the stock, I have to buy it at the current market price to meet my put obligation.
I can also buy back the put.

Front 35

What happens when I buy a put?

Back 35

I pay a premium (debit) of the put value. I then have the right to sell the underlying stock at the strike price up to the expiration date regardless of the market value of the stock. I can also sell back the put.

Front 36

How can I make money selling calls?

Back 36

If the call expires (i.e., is not exercised by the exercise date because the stock is below the strike price), I keep all the premium I received.
If the stock rises above the strike price and the call is exercised, I also make any difference between the price of the stock at the time I sold the call and the call strike price.
I can also buy back the call at a lower price than I sold it for and keep the difference as a credit.

Front 37

How can I make money buying calls?

Back 37

If the stock rises above the strike price more than the premium I paid for the option, I exercise the call and then purchase the stock for the strike price regardless of what it is trading for in the market. If I then close the position (e.g., sell the stock, I make the difference between the strike price and the current market price.

Front 38

How can I make money buying puts?

Back 38

If the stock is trading below the put strike price by an amount greater than the premium I paid for the put and I exercise the put (e.g., sell the stock at the strike price), I receive more money than the stock is selling for.

Front 39

How can I make money selling puts?

Back 39

If the put expires without the put being exercised, I keep the premium received.

Front 40

Bid

Back 40

What a buyer is offering to pay for an option.
(Sellers always want more.)

Front 41

Ask

Back 41

What a buyer has to pay for an option
(Sellers "ask" for this much.)

Front 42

Long Strangle

Back 42

Buy OTM call above current price;
Buy OTM put below current price.
Same exp date & number.
Expectation: Large movement up or down; or increase in IV

Front 43

Vertical Spreads

Back 43

Option positions that combine buying or selling calls or puts for the same underlying security.

Front 44

Long Vertical Call

Back 44

2 calls, both OTM.
Long (buy) lower strike;
Short (sell) higher strike.
Same month.
Bullish position.

Front 45

Long Vertical Put

Back 45

2 OTM puts:
Long (buy) put nearer strike;
Short (sell) put further OTM strike.
Same month
Bullish to neutral

Front 46

Short Vertical Put

Back 46

2 OTM puts:
Long (buy) above strike;
Short (sell) below strike;
Same month.
Bearish strategy

Front 47

Short Vertical Call

Back 47

2 OTM calls:
Short (sell) below strike;
Long (buy) above strike;
Same month.
Bearish