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107 Cards in this Set

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A ____ or _____ spread is a neutral spread.
calendar; horizontal
In the Chicago Board of Options Exchange, the Order Book Official is sometimes assisted by the ____ ____, who do what?
Board Brokers

Act like Deputy OBOs and handle the trading rotations.
An investor whose outlook is neutral, would engage in a ____ spread.
neutral
When a firm approves a customer for options trading it is for one or more _____ types of transactions. Any future change in the ____ of transactions must be _____.
specific;
types;
approved in writing
A Writer is synonymous with _____, and _____ him to _____ the stock to a call holder when the holder chooses to exercise.
seller; obligates; sell
The opening rotation on the Chicago Board of Options Exchange begins after the ____ ____ opens on its principal exchange, starting with the ______ and _____ and continues till all the option's _____ have been opened.
underlying security;
lowest strike price;
nearest expiration month;
series
Each customers account must be specifically approved for ______ ___ prior to the time that the firm accepts an ______ _____ from the customer.
options trading; options order
Naked Call Writers have a profit potential that is ______, and a loss potential that is ______.
the amount of their premium; unlimited
Every morning when the market opens on the Chicago Board of Options Exchange, the OBO calls for ____ ____ ___ from the trading crowd. This is called the ___ ____.
bids and offers (asks);

Opening rotation.
On a Bear Spread the option being purchased has a ____ strike price than the one being sold.
higher
An Option Agreement is a ___ ___of every options customer, similar in purpose to a loan agreement, and ____ days after the account has been approved for options, the firm must have obtained a _______ signed by the customer.
written approval; 15; Written Account Agreement.
A Put is an option to have the right to _____ stock at a certain price.
sell
The Closing Rotation takes place on the ____ ____ Day prior to _______. Each series is closed in rotation from the ____ and ____ to the ____ and ____.
last business; expiration; lowest strike price; nearest expiration; highest strike; longest expiration month.
The Call-Up Rule for break even is what?
Long/short Calls: Add the premium to the strike price.

Call Spread: Add the debit or credit to the lower strike price.
The Closing rotation begins ____ the underlying security _____ on its principal exchange.
after; closes
The value of a put option will ____ as the price of the underlying stock goes down.
increase
A long call and Short Put are equivalent to a ____ ___.
long stock
The acronym WED means what?
Widen

Exersize

Debit
If a ____ ____ is declared, an Intra Day Rotation may be intiated. Intra day rotations are also intitiated to ___ the trading of options once trading has been ____.
fast market; reopen; halted.
A Put buyer has the advantages over a short seller of stock of _____ and ____ ____ .
1. Leverage: earns the profit with less investment.
2. Limited risk: maximum loss is the option premium.
The Market Maker/Registered Options Trader (ROT) on the Chicago Board of Options Exchange acts like a _____ on the floor, trading on their own ____ ____ ___.
dealer; account and risk.
The easiest way to identify a bull spread is the option being purchased has a ____ price than the option being sold.
lower
A long put + a short call is equivalent to a ____ ____.
short stock
A short put is covered only when the writer is also long a put of the same ____ with an _____ __ ____ strike price.
class; equal or greater
If a ROT on the Chicago Board of Options Exchange makes a firm quote, they must honor it for the next ___ trades.
10
On a calendar or horizontal spread, you want to ____ the near and ____ the far.
sell; buy
Protection: Equivalent: long stock + long put = ____.
long call
The value of a put option will ____ as the price of the underlying stock goes down.
increase
In the case of a short straddle combination the maximum profit and loss is what?
Profit: the combined premiums.

Loss: Unlimited.
The Put-Down Rule for break even is what?
Long/short puts: Subtract the premium from the strike price.

Put spread: Subtract the debit/credit from the higher strike price.
When an option is "in the money" it is said to have what?
intrinsic value
What are two reasons why purchasing a call option on a stock would be a more attractive alternative than actually owning the stock?
1. Leverage: potential for same profit with less investment.
2. Reduction in risk: owner of stock could lose more than than the owner of an option.
The maximum profit and loss on the holder of a long combination is what?
Profit: Unlimited

Loss: Only the premiums
The acronym NUC means what?
Narrow

Unexercised

Credit
Income Equivalent: long stock + short call = ____.
short put
Writing a Covered Call means the Writer has his short position covered by a ownership of the _____ _____ sufficient to cover the call. He doesn't have to have actual ownership if he has a _____ position _____ to cover the obligation to sell the securities.
underlying stock; long; sufficient
When the ___ ____ are the same and the ____ are different, it is known as a Vertical or ____ spread.
expiration dates; prices; price
Call is synonymous with ___.
buy
Time Value =
Premium less the Intrinsic Value
When an investor buys a Call option, his potential for profit is _____, his potential for loss is ____.
unlimited; the premium he paid.
If the option we are selling brings in a higher premium than the one we are buying it is known as a ___ ____.
credit spread
Each option is usually for ___ shares of common stock. But can be more if there was a stock ____ or stock ___.
100; dividend; split
Protection: Equivalent: short stock + long call = ____.
long put
Call Writing is _____, and the writer is ultimately hoping that ______.
Bearish; the holder never exercises the option to buy.
If the premium of the option we are purchasing ____ ____ than the option we are selling it is called a Debit Spread.
costs more
The four main terms of an Option Contract are?
1. Underlying Stock.
2. Expiration Month
3. Excercise/Strike Price
4. Type of Option
On the Chicago Board of Options Exchange (CBOE), the ____ ___ ___ maintains an orderly market.
Order Book Official (OBO)
What is the maximum that the put writer can lose?
The price of the stock less his premium.
The only difference between a Combination and a Straddle is that in a straddle both the put and call are _____, wheras in the combination, at least ____ term is _____.
identical; one; different.
On a short straddle or combination, a profit is realized if the stock price does what?
stays inside
Income Equivalent: short stock + short put = ____.
short call
What is the most an option writer can make?
the premium
Whent the ____ are the same and the ____ ____ are different, it is known as a horizontal or _____ spread.
prices; expiration dates; calendar
On a long straddle or combination a profit is realized if the stock price does what?
moves outside
Calls are Out-Of-The-Money when the market price is ____ than the strike price. Puts are Out-Of-The-Money when the market price is ____ than the strike price.
lower; higher
In the case of credit spreads, the short position is always ____.
naked.
Buying a put and a call on the same underlying stock is known as a ____ ____.
long combination
To figure the two break even prices for straddles and combinations, you ____ the ____ premium to the Call strike price and ____ the ____ premium from the Put strike price.
add; combined

subtract; combined
The Exercise Price for Options is fixed at what intervals for the following amounts: 5-25; 25-200; over 200.
2 1/2 points; 5 points; 10 points.
What is the maximum possible profit and loss on a debit spread.
Profit: The difference between the strike prices of the two options less the debit.

Loss: the debit.
A spread is the simultaneous ___ and ____ position in the ____ class of options.
long; short; same
An option is an unusual security that is actually a _____.
contract
Last Trade of an option is when? What time for Broad Index options?
3:02 PM Central Standard Time on the third Friday of the expiration month.

3:15 PM CST of the above day.
In the case of debit spreads, the short position is always ____.
covered
A capped index option is automatically exercised when _____, and settlement is within ___ business days.
the index price reaches the capped price; 2
Put is synonymous with ____.
sell
All options positions begin with ______ transactions and are terminated by ____ transactions.
opening; closing
What is the maximum possible profit and loss on a credit spread?
Profit: the credit.

Loss: The difference between the two strike prices less the credit.
The "Yield Indicator" in a Yield-Based Option is the ____ ____ ____ of the most _____ treasury bill x 10.
Yield to maturity; recent
Options of the ___ type, and the ____ underlying security belong to the same ____ of options.
same; same; class
A short position describes someone who ____ an option.
has written (sold)
Unlike a Stock Option where actual shares will be exchanged, When an Index Option is exersized, the ________ change hands.
difference between the strike price and the closing index price
The time value is greatest on those options that have the most ______.
time until expiration.
An investor who purchases a T Bond Put in anticipation of a price decrease is actually anticipating an ____ _____ ____.
interest rate increase.
A long position describes someone who ___ an option.
owns (holds)
All equity LEAPS can be exercised _____ style, wheras all index LEAPS are exercised ____ style.
American; European
The standard expiration cycle is the next _____, and the next _____ following those in the options cycle.
two months; two months
Leap stands for ___.
Long-term Equity Anticipation Securities.
Out of the money means the option has ____ ____ value.
no intrinsic
All Yield based options are ____ style, which means they may only be exercised when?
European; the day before expiration.
The Aggregate Exercise Price is the ____.
the price computed by multiplying the strike price by the number of shares in the option.
The "Underlying Yield" in a Yield-Based Maturity is the annualized ____ ____ ___ of the most recently issued treasury security.
yield to maturity
Calls tend to be worth more in ___ markets. Puts tend to be worth more in ___ markets.
Bull; Bear
A straddle or combination buyer needs _____ to profit.
volatility
The regular way settlement of all listed options trades is the ____ ____ ___.
next business day
A leap can have an expiration date up to _____.
slightly more than 3 years.
Open interest is ____ .
the total number of potentially exercisable contracts that are currently existing in the records of the OCC;
The "Wash Sale" rule says that the IRS will not allow an investor to claim a loss on the sale of a security if ____.
the purchase a "substantially identical" security either 30 prior to after the sale.
An option is considered to be selling at parity when the ____ is equal to its _____.
premium; intrinsic value
Pegging is a form of manipulation that involves both ____ and ____.
capping; supporting
The expiration date of all listed equity options is ___.
10:59 PM Central Time on the Saturday following the third Friday of the expiration month.
Capping is a form of manipulation that involves what?
An options trader with a short call that issues a series of sales orders in an attempt to keep the stock price from rising above the strike price.
At any time there are ____ expiration dates available.
4
For tax purposes the holder of a long option that is unexercised on expiration date will treat the loss as a ____ ____.
capital loss
Equity Option exercise settlement is ___ ___ ___ after receiving notice.
3 business days.
Supporting is a form of manipulation that involves what?
An options trader with a short put issues a series of buy orders in an attempt to keep the stock price from falling below the strike price.
Time Value = premium minus ____ (if any)
intrinsic value
The projected performance in sales literature, among other things, may not base annualized rates of return on less than a ____ ___ time frame.
60 day
Calls are In-The-Money when the market price is ____ than the strike price. Puts are In-The-Money when the market price is ___ than the strike price.
higher; lower
An Options Disclosure Document (ODD) is the equivalent of a stock _____.
prospectus
Last Exercise is what date?
4:30 PM CST on the third Friday of the expiraton month.
Frontrunning is a form of manipulation that involves what?
Option positions are taken after a firm has recieved a block order on the underlying security but prior to submitting that block order.
The market price of an option is known as the ____ and is always quoted on a ___ ___ basis.
premium; per share
Among other things, sales literature may include information about past performance provided the material is confined to a specific ______ and covers at least the most recent ____ ____ period.
universe; 12 month
The OCC assigns notice of exercise ____ to a member firm. In turn, how can the firm can assign the notice?
randomly.

Randomly, FIFO, or any other method considered fair.

Any option holder who sells his option via a closing sale transaction prior to the expiration date of the option would have a _____ gain/loss.
capital
In the money means the options has ____ value.
intrinsic