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Flashcards in Beginner Track Deck (11)
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1

How many stocks do you control under 1 option contract?

100 shares of the stock - power of leverage

2

ATM vs OTM?

at the money - means the stock price is trading at the strike price you are buying at 

out of the money - means you are buying at a strike price the stock price has yet to reach (normally when you are more bullish/bearish in a position)

3

What is your max loss on a call option?

the premium you paid for the contract - same for long put options

4

When does a  long call option break even?

when the stocks prices at expiration = long call strike + premium 

5

What does buying a put option mean for you?

you are entering into a contract where you have the right, not the obligation to sell stock to the counterparty at an agree on price (the strike price)

Hoping the values goes down so you can buy it for cheaper in the market and sell it back at a higher price 

6

What is time decay?

the closer the option gets to its expiration date its value goes down as the expiration price becomes more clear. 

Once the time value disappears all that remains is the intrinsic value, for ITM options that is the difference between the stock price and the strike price 

7

What is the break-even price of a put-option?

Long-Put strike - premium

8

What are the 4 basic things we can do with options?

obligation to do something happens at expiration and assignment (which normally happens in the last week)

9

What are your expectations about the underlying when buying/selling calls and puts?

10

What are the credits and debits when entering into an options contract?

  • Long = Buy to Open (BTO) = Debit --> buying to open something
  • Long = Sell to Close (STC) = Credit --> receive money for selling  
    • Sell to revise the position and close it 

 

  • Short = Sell to Open (STO) = Credit --> receive the premium from someone entering a contract (the person BTO)
  • Short = Buy to Close (BTC) = Debit  --> buy back your contract at a cheaper price hopefully 

11

What is the difference between trading on Cash hand on Margin?

  • Cash to completely fund a contract --> usually needed for net long options and for your IRA/Retirement fund
    • Need to max potential risk in your account 
  • The margin usually happens on net short position and non-IRA accounts 
    • you only put up some cash to back the trade