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