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Series 7 > Options > Flashcards

Flashcards in Options Deck (27):
1

Straddles and combos

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

Long = buying
Short = selling

2

Spread

Buy and sell same class (type and stock)

Must always be executed in a margin acct

3

Spreads

All about the premiums!

Credit vs. Debit

Credits (short)
More in the IN column

Debits (long)
More in the out column

4

Impact of odd stock splits on options

1. Contracts the same

2. Shares increase

3. Strike decreases

Same as stock divs

5

Covered calls are covered with?

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

6

Long combo

Buy a call, buy a put

Same: stock
Different: strike, expiration

Looking for volatility

7

Long straddle

Buy a call, buy a put

Same: stock, strike, expiration

Looking for volatility

8

Short straddle

Sell a call, sell a put

Same: strike, stock, expiration

Looking for stability

9

Short combo

Sell a call, sell a put

Same: stock
Different: strike, expiration

Looking for stability

10

Types of spread

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

11

Spread profit

Focus on premium

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

12

Nature of spread

Bullish - buy low, sell high (strike price)

Bearish - buy high, sell low (strike price)

13

Spread Breakeven

CALS
Calls Add to Lower Strike price (call spread)

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

14

Put spread

Buy a put, sell a put

15

Impact of stock divs on options.

1. Contracts the same

2. Shares (per contract) increase

3. Strike decreases

16

Impact of cash dividend on options

No affect

17

Covered puts are covered with?

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

18

Impact of even stock splits on options

1. Contracts increase

2. Shares same

3. Strike decrease

19

Value of an option

PIT

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

20

Call spread

Sell a call, buy a call

21

Breakeven

Call up = strike price + premium

Put down = strike price - premium

22

OPRA

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

23

Occ

Issuer and guarantor of all listed options

Establishes size, dates, and strike

Randomly selects brokerage responsible for settling

24

Deadline for option exercise

5:30 EST on business day of expiration

25

When do options expire

11:59 EST 3rd Friday if the expiration month

26

How options settle

Settle in one business day, payment due in 5

27

Deadline for closing an option

4pm eastern on business day of expiration