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series 7 > Options > Flashcards

Options Flashcards

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Series 7 Top-off Exam flashcards
1
Q

What is the intrinsic value on a call?

A

CMVs > SP = ITM

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2
Q

What is the intrinsic value on a put?

A

CMVs < SP = ITM

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3
Q

What is intrinsic value?

A

time value + intrinsic value = premium
the more time you have = more value
more time = higher premium

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4
Q

What is exercising an option?

A

purchasing the underlying stock

acting upon the option

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5
Q

What is expire?

A

You do nothing with the option and it expires

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6
Q

What is closing the position?

A

Trading

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7
Q

When a buyer is bullish on a call…

A

Right to buy
@ state price/time
100 shares of stock

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8
Q

When a buyer is bearish on a call….

A

Obligated to sell
@ predetermined price/tie
100 shares - if exercised

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9
Q

Buying is also known as

A

Hold/Long

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10
Q

Selling is also known as

A

Short/Write

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11
Q

What is the most you can lose when you BUY an option

A

ONLY your premium!

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12
Q

What is the most you can gain when you BUY?

A

Max Gain = Unlimited

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13
Q

What is the BE calc for buying an option

A

SP+P = BE

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14
Q

What is the BE calc for selling a call

A

SP - P = BE

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15
Q

A put is more valuable when?

A

As the price of the stock declines

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16
Q

What is a naked call?

A

Selling stock you don’t own

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17
Q

When do you have unlimited risk?

A

Through uncovered calls and selling stock short

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18
Q

What is a hedge?

A

Investing in stock and using an option to

  1. Protect/guard against risk
  2. Profit - increase return (generate income)
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19
Q

What does a put do?

A

Allows us to exercise our right to sell or buy

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20
Q

What is a straddle?

A

Buying both types (call/put)
or
Selling both types (call/put)

21
Q

What is a long straddle designed for?

A

Help with volatility (unsure of market movement)

22
Q

What is the BE on long straddles?

A

SP + & - BOTH premiums

Long 1 XYZ Sep 40 call @ 4
Long 1 XYZ Sep 40 put @2

BE = 46/34

23
Q

What is a short straddle used for?

A

Help with a stable market

24
Q

What is a combination?

A

A straddle with different strike prices

25
Q

Why would someone write a combination?

A

they are neutral on the market

26
Q

What is a spread?

A

The buying and selling of the SAME type

27
Q

Call Spread

A

the lower SP is more dominant

CAL

28
Q

How do you find the max gain / loss on a call spread?

A 
Find one (premium) and then you will know the other
Remmember the difference is always between the two SP

Long 1 XYZ Nov 30 call @4
Short 1 XYZ Nov 40 call @1

BE = 33
Max loss = $300
Max gain = $700

29
Q

When considering a Put Spread

A

The higher premium dominates - determines attitude

30
Q

When does the options agreement need to be signed?

A

15 days from account approval

31
Q

What does the CBOE do?

A

Standardize options
Clearing House
Commission
have FIFO or Random assignment

32
Q

How do options settle?

A

T+1

33
Q

How does the OCC assign exercise notices?

A

Random method only.

34
Q

Who does the OCC work with?

A

Institutional

35
Q

When does options trading cease?

A

3rd Friday of expiration month @4pm EST

36
Q

What does the OCC do with all of the options ITM?

A

Exercises them…forces you to close

37
Q

When do options expire?

A

11:59 pm Friday

38
Q

How do you determine a position limit?

A

“What is the same side of the market” (market attitude)

39
Q

Options are affected by dividends? T or F

A

False

40
Q

How are options taxed?

A

Short term CG tax (all options are 9 mo in length)

41
Q

What is a married put?

A

When you purchase on the same day stock and a put option as a hedge

42
Q

What happens when there is a split on an options contract?

A

Even - effects contracts (2:1 - anything not for 1 is uneven)
Uneven - effects shares and SP (like stock split)

43
Q

When you have a non-equity option

A

It settles in cash, not shares

44
Q

OEX

A

Is the S&P 100

45
Q

SPX

A

S&P 500

46
Q

What is an American option

A

Ability to exercise at any time

47
Q

What is a European option

A

Option to exercise only at experiation

48
Q

When concerned with imports what do we do?

A

Risk is the concern that the US $ will decrease

Exporters buy
Puts
Importers buy
Calls

49
Q

When concerned the exports what should we do?

A 
Risk is the concern that the US dollar will increase
Exporters buy
Calls
Importers buy
Puts

series 7 (8 decks)

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