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17 Cards in this Set

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Option
a two party contract that conveys a right to the buyer and an obligation to the seller.
Terms of Options are standardized thru what corporation?
OCC-Options Clearing Corporation which allows options to be traded easily on an exchange such as the CBOE-Chicago Board Options Exchange.
What are the different types of options and how many are their?
Their are only two types, Calls, and Pulls.
Underlying Instrument
Anything with fluctuation value can be the underlying instrument of an option contract.
What is LEAPS?
Long-term equity anticipation security: a longer contract than that of regular options
Derivative securities
Options are called Derivative securities because their value is derived from the value of the underlying instrument, such as stock, an index, or a foreign currency.
Describe the difference between a call and a put
A call is hoping for the market to rise, a put is hoping for the market to fall.
Longer Call
the call buyers right to buy 100 shares of a specific stock at the strike price before the expiration if he chooses to exercise.
Short Call
a call writers has the obligation to sell the 100 shares of a specific stock at the strike price if the buyer exercises the contract.
Long Put
a put buyer owns the right to sell 100 shares of a specific stock at the strike price before the expiration if he chooses
Short Put
A put writer has the obligation to buy 100 shares of a specific stock at the strike price if the buyer exercises the contract.
In the Money (call)
A call is in-the-money when the market price exceeds the strike price.
At-the-money (call)
a call is at the money when the market price equals the strike price.
Intrinsic value (call)
the in-the-money amount.
Parity (call)
an option is at parity when the premiums equals the intrinsic value.
Breakeven (Call)
The breakeven point is the point at which the investor neither makes nor loses money.
Time Value
Time value is the difference between the premium and the intrinsic value