Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key

image

Play button

image

Play button

image

Progress

1/22

Click to flip

22 Cards in this Set

  • Front
  • Back

Financial option

A contract that gives its owner the right (but not the obligation) to purchase or sell an asset at a fixed price at some future date.

Call option

A financial option that gives its owner the right to buy an asset.

Put option

A financial option that gives its owner the right to sell an asset.

Option writer
The seller of an option contract.

Derivatives

Securities whose cash flows depend solely on the prices of other marketed assets.

Warrant

A call option written by a company itself on new stock.

Exercising (an option)

When a holder of an option enforces the agreement and buys or sells a share of stock at the agreed-upon price.

Strike (exercise) price

The price at which an option holder buys of sells a share of stock when the option is excised.

American options

The most common kind of option, they allow their holders to exercise the option on any dated up to and including the expiration date.

Expiration date

The last date on which an option holder has the right to exercise the option.

European options

Options that allow their holders to exercise the option only on the expiration date.

Open interest

The total number of contracts of a particular option that have been written and not yet closed.

At-the-money

Describes options whose exercise prices are equal to the current stock price.

In-the-memory

Describes an option whose value if immediately exercised would be positive.

Out-of-the-memory

Describes an option that if exercised immediately results in a loss of money.

Deep in-the-money

Describes options that are in-the-money and for which the strike price and the stock price are very far apart.

Deep out-of-the-money

Describes options that are out-of-the-money and for which the strike price and the stock price are very far apart.

Hedging

To reduce risk by holding contracts or securities whose payoffs are negatively correlated with some risk exposure.

Speculate

When investigators use securities to place a bet on the direction in which they believe the market is likely to move.

Protective put

Purchasing a put option on a stock you already own.

Portfolio insurance

A protective put written on a portfolio rather than a single stock.

Put-call parity


(for non-dividend paying stocks)

The relationship that gives the price of a call option in terms of the price of a put option plus the price of the underlying stock minus the present value of the strike price.