Options: Puts and Calls Flashcards
CH 14 (28 cards)
at the money
A call or put option is at the money when the strike price of the option and the market price of the underlying stock are equal. (Chapter 14)
call
A negotiable instrument that gives the holder the right to buy securities at a stated price within a certain time period. (Chapter 14)
conventional options
Put and call options sold over the counter. (Chapter 14)
covered options
Options written against stock owned (or short-sold) by the writer. (Chapter 14)
currency options
Put and call options written on foreign currencies. (Chapter 14)
derivative securities
Securities that are structured to exhibit characteristics similar to those of an underlying security or asset and that derive their value from the underlying security or asset. (Chapters 1 and 14)
expiration date
The date at which an option expires. (Chapter 14)
hedge
A combination of two or more securities into a single investment position for the purpose of reducing or eliminating risk. (Chapter 14)
in-the-money
A call option with a strike price less than the market price of the underlying security; a put option whose strike price is greater than the market price of the underlying security. (Chapter 14)
interest rate options
Put and call options written on fixed-income (debt) securities. (Chapter 14)
intrinsic value
The underlying or inherent value of a stock, as determined through fundamental analysis. (Chapter 7) Also, the gross amount of money that an investor would receive if he or she chose to exercise an option. (Chapter 14)
LEAPS
LEAPS (Long-Term Equity Anticipation Securities) are option contracts with expirations greater than one year.
leverage
The ability to obtain a given equity position at a reduced capital investment, thereby magnifying returns. (Chapter 14)
listed options
Put and call options listed and traded on organized securities exchanges, such as the CBOE. (Chapter 14)
naked options
Options written on securities not owned by the writer. (Chapter 14)
option
Security that gives the holder the right to buy or sell a certain amount of an underlying financial asset at a specified price for a specified period of time. (Chapters 1 and 14)
option chain
A list of all options traded on a particular security. An option chain provides the current market prices and trading volumes for all options linked to a particular stock. (Chapter 14)
option premium
The quoted price the investor pays to buy a listed put or call option. (Chapter 14)
option spreading
Combining two or more options with different strike prices and/or expiration dates into a single transaction. (Chapter 14)
option straddle
The simultaneous purchase (or sale) of a put and a call on the same underlying common stock (or financial asset). (Chapter 14)
option writer (or seller)
The individual or institution that writes/creates put and call options. (Chapter 14)
out-of-the-money
A call option with no real value because the strike price exceeds the market price of the stock; a put option whose market price exceeds the strike price. (Chapter 14)
put
A negotiable instrument that enables the holder to sell the underlying security at a specified price over a set period of time. (Chapter 14)
