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series 7 > Options and Recommendations (Suitability) > Flashcards

Options and Recommendations (Suitability) Flashcards

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Series 7 Top-off Exam flashcards
1
Q

Long Call

A

Choice to buy the stock

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2
Q

Short Call

A

Obligation to sell the stock (at STRIKE)

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3
Q

Long Put

A

Choice to sell the stock

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4
Q

Short Put

A

Obligation to buy the stock (at STRIKE)

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5
Q

Settlement for Options

A

T + 1

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6
Q

Resulting Stock Trade (settlement) after Options Settlement

A

T + 2

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7
Q

Premium [equation]

A

Intrinsic Value + Time Value

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8
Q

OCC

A

Options Clearing Corporation: The Issuer and Guarantor of all options contracts

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9
Q

Exercise Styles

A

American Style: Exercise at any time (common for equity options contracts)
European Style: Exercise on last trading date at expiration (common for non-equity options contracts)

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10
Q

Index Options Settlement

A

T + 1

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11
Q

Resulting Exercise of Index Options Settlement

A

T + 1

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12
Q

Opening Purchases

A

Used to establish/add to a long position
(remember: Purchase = Buy = LONG)

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13
Q

Opening Sales

A

Used to establish/add to a short position
(remember: Sale = Sell = SHORT)

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14
Q

Offsetting (to an Opening Purchase/Sale) / Closing Purchase or Sale

A

Closing Purchase is used to eliminate a short position
Closing Sale is used to elimiate a long position
(remember: OPPOSITE of Opening Purchase/Sale)

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15
Q

If a contract does not have Intrinsic Value, the option will…

A

Expire Worthless

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16
Q

If a contract has Intrinsic Value, the option will…

A

Be exercised

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17
Q

Position Limits apply to…

A

The same side of the market

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18
Q

Class

A

Stock + Type of option (call or put)

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19
Q

BUY SIDE of the market is also known as…

A

The Bullish Side: consists of Long Calls and Short Puts

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20
Q

SELL SIDE of the market is also known as…

A

The Bearish Side: consists of Short Calls and Long Puts

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21
Q

LEAPS

A

Long-term Equity Anticipation Securities: Technically 39 months, but 30 months in practice. LEAPS are the only contracts that may qualify for long-term option contracts

22
Q

True or False: Longer term options contracts always have lesser premiums.

A

False
(remember: Longer = Better)

23
Q

True or False: Yield-based Options have a direct relationship to interest rates

A

True
(remember: Yield always correlates to Interest Rates)

24
Q

Strategy: Protective Put for Equity/Index Options

A

Gives the ability to participate in a big price increase, but not participate in a price decline

25
Q

Strategy: Covered Call and Put Writing for Equity Options

A

Generate additional income and/or supplement dividend income

26
Q

VIX

A

Volatility Index

27
Q

For Advanced Options Strategies, you are either buying or selling…

A

Volatility
If you’re LONG CALL / SHORT PUT, you’re buying UPWARD VOLATILITY
If you’re LONG PUT / SHORT CALL, you’re buying DOWNWARD VOLATILITY

28
Q

What is the max loss in a Long/Debit Spread?

A

Debit

29
Q

Debit call spread is BULLISH / BEARISH

A

Bullish

30
Q

Debit put spread is BULLISH / BEARISH

A

Bearish

31
Q

What is the max gain in a Short/Credit Spread?

A

Premium

32
Q

Credit call spread is BULLISH / BEARISH

A

Bearish

33
Q

Credit put spread is BULLISH / BEARISH

A

Bullish

34
Q

What are the important components of Straddles?

A

1) Identify the straddle (Long or Short)
2) Calculate the breakevens
3) Determine where the straddle is profitable (Short-Inside, Long-Outside; aka SILO)
4) When do you use a straddle?

35
Q

What are the important components of Spreads?

A

1) Identify the spread (Long or Short)
2) Identify if the spread is Debit or Credit
3) Determine whether contracts want to Expire or Exercise
4) Determine if difference in premiums Narrow or Widen
5) Find MAX GAIN and MAX LOSS
6) Calculate the breakevens (Call: Add to Lower; aka CAL, Put: Subtract from Higher; aka PUSH)
7) Determine Bullish or Bearish (remember: Larger premium DOMINATES the position)

36
Q

For Spreads, which identifiers always go together?

A

1) Credit, Expire, Narrow (CEN)
2) Debit, Exercise, Widen (DEW)

37
Q

Naked/Uncovered Call

A

Agree to sell stock you don’t own

38
Q

True or False: Naked/Uncovered Calls hold limited risk.

A

False: ALWAYS UNLIMITED RISK

39
Q

True or False: Naked/Uncovered Puts hold limited risk.

A

True: Breakeven to 0

40
Q

Call Breakevens [equation]

A

Strike + Premium

41
Q

Put Breakevens [equation]

A

Strike - Premium

42
Q

Stock + Options: Covered Call Breakeven [equation]

A

Stock Cost - Premium

43
Q

Stock + Options: Protective Put Breakeven [equation]

A

Stock Cost + Premium

44
Q

Straddle: Upside Breakeven [equation]

A

Strike + TOTAL Premiums

45
Q

Straddle: Downside Breakeven [equation]

A

Strike - TOTAL Premiums

46
Q

Spread: Call Breakeven [equation]

A

Lower Strike + NET Premium
(remember: Call = add to lower)

47
Q

Spread: Put Breakeven [equation]

A

Higher Strike - NET Premium
(remember: Put = subtract from higher)

48
Q

Options contracts can either be…

A

Traded, Exercised, or Expired
(remember: TEE)

49
Q

What are the tax treatments for TEE?

A

Traded: ALL short term
Exercised: Follows Breakeven
(remember: Cost Basis = Breakeven)
Expired: ALL short term (exception of LEAP, which is long-term)

50
Q
A

series 7 (8 decks)

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