Options

Question 1

Straddles and combos

Answer 1

Straddles use opposite types of options, always a buy and a put.

Long = buying
Short = selling

Question 2

Spread

Answer 2

Buy and sell same class (type and stock)

Must always be executed in a margin acct

Question 3

Spreads

All about the premiums!

Credit vs. Debit

Answer 3

Credits (short)
More in the IN column

Debits (long)
More in the out column

Question 4

Impact of odd stock splits on options

Answer 4

1. Contracts the same
2. Shares increase
3. Strike decreases

Same as stock divs

Question 5

Covered calls are covered with?

Answer 5

Any one of the following:

1. Owning underlying stock
2. Escrow receipt
3. Owning convertible bonds or stocks
4. Owning call option w/same strike or lower, same stock, same expiration or later

Question 6

Long combo

Answer 6

Buy a call, buy a put

Same: stock
Different: strike, expiration

Looking for volatility

Question 7

Long straddle

Answer 7

Buy a call, buy a put

Same: stock, strike, expiration

Looking for volatility

Question 8

Short straddle

Answer 8

Sell a call, sell a put

Same: strike, stock, expiration

Looking for stability

Question 9

Short combo

Answer 9

Sell a call, sell a put

Same: stock
Different: strike, expiration

Looking for stability

Question 10

Types of spread

Answer 10

1. Vertical - different prices, go up and down
2. Horizontal - different expiration, dates on a calendar go side to side
3. Diagonal - different price AND expiration

Question 11

Spread profit

Answer 11

Focus on premium

1. Set up t chart
2. ID if credit or debit
3. WED - widen, exercise, debit
   NUC - narrow, unexercised, credit

Question 12

Nature of spread

Answer 12

Bullish - buy low, sell high (strike price)

Bearish - buy high, sell low (strike price)

Question 13

Spread Breakeven

Answer 13

CALS
Calls Add to Lower Strike price (call spread)

PUSH
Puts U Subtract from Higher Strike price (put spread)

Question 14

Put spread

Answer 14

Buy a put, sell a put

Question 15

Impact of stock divs on options.

Answer 15

1. Contracts the same
2. Shares (per contract) increase
3. Strike decreases

Question 16

Impact of cash dividend on options

Answer 16

No affect

Question 17

Covered puts are covered with?

Answer 17

Any one of the following:

1. Owning put option w/ same strike or higher, same stock, same expiration or later
2. Having cash or escrow equal to strike
3. Short the underlying stock

Question 18

Impact of even stock splits on options

Answer 18

1. Contracts increase
2. Shares same
3. Strike decrease

Question 19

Value of an option

Answer 19

PIT

Premium=Intrinsic Value (amount in the money) + Time Value

Question 20

Call spread

Answer 20

Sell a call, buy a call

Question 21

Breakeven

Answer 21

Call up = strike price + premium

Put down = strike price - premium

Question 22

OPRA

Answer 22

The computer database that shows the bid ask if options and reports trades already executed

Question 23

Occ

Answer 23

Issuer and guarantor of all listed options

Establishes size, dates, and strike

Randomly selects brokerage responsible for settling

Question 24

Deadline for option exercise

Answer 24

5:30 EST on business day of expiration

Question 25

When do options expire

Answer 25

11:59 EST 3rd Friday if the expiration month

Question 26

How options settle

Answer 26

Settle in one business day, payment due in 5

Question 27

Deadline for closing an option

Answer 27

4pm eastern on business day of expiration