Options - Shortcuts And Memorize Flashcards
(117 cards)
1
Q
(Put/call) Straddle Breakeven
A
*Buying: Add total premiums to Call strike, reduce Put strike by total premium.
2
Q
Profitable Spread (Long/Debit)
A
Spread on premium must widen to close because you are long the higher premium contract.
3
Q
Profitable Spread (short)
A
Premium spread must narrow to close because you are short the more expensive contract.
4
Q
Breakeven for spread - which contract is in focus?
A
The short contract almost always determines the breakeven, as that is the place where you can incur loss.
5
Q
Long Call Strategy characteristics
A
Market Sentiment: Bullish
MPG: Unlimited
MPL: Premium paid
B/E: Strike + Premium
6
Q
Short Call Strategy Characteristics
A
Market Sentiment: Bearish
MPG: Premium Received
MPL: Unlimited
B/E: Strike + Premium
7
Q
Long Put Strategy Characteristics
A
Market Sentiment: Bearish
MPG: B/E to $0
MPL: Premium Paid
B/E: Strike - Premium
8
Q
Short Put Strategy Characteristics
A
Market Sentiment: Bullish
MPG: Premium Received
MPL: B/E to $0
B/E: Strike - Premium
9
Q
Must report positions of ____ contracts or more of any one single class of option to CBOE/OCC
A
200 contracts
10
Q
LOPR
A
Large Options Position Report
In aggregating common control positions on same side of market; filed T+1 changes filed no later than T+5
11
Q
When is LOPR required by?
A
T+1
12
Q
___ Cycles of expiration
A
3 cycles
13
Q
Expiration Cycle 1
A
Jan, Apr, Jul, Oct
14
Q
Expiration Cycle 2
A
Feb, May, Aug, Nov
15
Q
Expiration Cycle 3
A
Mar, Jun, Sep, Dec
16
Q
Weekly Options Issuance and Expiration
A
Issued on Thursday, Expires Friday 8 days later
17
Q
Options Trading Cut Off
A
4:00pm ET, Friday before expiration
Followed by, “Closing Rotation”
18
Q
Monthly Options Expiration
A
3rd Friday of the Month 11:59PM ET (Triple Witching)
19
Q
Exercise Cut Off
A
5:30pm ET, third Friday of the month - up to expiration
20
Q
CEA
A
Contrary Exercise Advice = stops automatic exercise, or exercises out of the money
*Accepted 2 hours after 5:30pm exercise cutoff… I.e. until 7:30PM third Friday of the month
21
Q
American Options
A
Can be exercised at any time before expiration; OEX - S&P 100
22
Q
European Options
A
Exercisable only at expiration
Nearly all index options, except OEX; Specifically S&P 500 - SPX options
23
Q
Premium Increments
A
$0.05 @ < $3 prem, $0.10 @ >= $3 prem
24
Q
Expiration of Equity Options Contracts
A
11:59pm ET on 3rd Friday of the month
25
Synthetic Long Call
Long Stock/ Long Put
-/- strategy
Characteristics: Unlimited upside; Premium max downside; B/E is market price + premium
26
Synthetic Long Put
Short Stock/ Long Call
-/+ strategy
Characteristics: Max gain stock goes to $0; loss limited to premium; B/E is market px - premium
27
Synthetic Short Call
Short stock / Short Put
+/+ strategy
Characteristics: Unlimited loss potential; Gain limited to premium; B/E is market px + premium
28
Synthetic Short Put
Long Stock / Short Call
+/- strategy
Characteristics: Max loss stock to $0; Gain limited to premium; B/E is market px - premium
29
Options Trade Settlement
Next Business day; UNLESS clearing in cash - same day settle
30
Clearing of Options Writer
Stock must be purchased or delivered to holder within 2 business days after exercise
31
Changes to initial LOPR reported by _____
T + 5
32
Exercise Limits
Limits number of contracts that can be exercised within 5 business days
33
Adjustment to contracts (Whole Share Split)
ABC stock splits 2:1
Multiplies contract number, divides price
* Before: 1 ABC Jan 60 Call*
* After: 2 ABC Jan 30 Calls*
34
Adjustment to Contracts (Fractional splits and Stock Dividends)
No change to number of contracts, strike and number of shares change
** ABC pays 20% stock dividend
Before: 1 ABC Jan 60 Call
After: 1 ABC Jan 50 Call covering 120 shares
120% shares; 60/1.2 = 50
35
Adjustment to Contracts (Reverse Stock Split)
No adjustment to contract, only deliverable and price on exercise
* ABC split 1:3
Same contract terms - 1 ABC JAN 20 Call
Delivers shares 100/3 = 33.33 shares @ $20 x 3 = 60
** The fraction of stock is delivered in cash, 33 shares received.**
36
Maximum Life of Standard Equity Options (Technical)
9 months (tested) *Actual is 8 months*
37
LEAP Issuance Months
Sept, Oct, Nov
38
LEAP life cycle
~28 months, always expire in January
39
LEAPs Legal Maximum Life
39 months (determined by SEC)
40
Mini-Contracts
10 shares
41
Jumbo Contracts
1,000 shares underlying
42
Option Type
Call or Put
43
Option Class
Type and Underlying are same
* All IBM Calls
44
Option Series
Same type, Class, strike and expiration
* all IBM Jan 50 Calls
45
VIX Contracts Characteristics
Available on the upcoming 2 months, plus 1 month on Feb Quarterly Schedule
(Feb-May-Aug-Nov)
46
VIX Exercise Settlement
Based on monthly calculation of upcoming 30 day price volatility
47
Adjustment to contracts:
| Cash dividends
No change
48
Adjustments to contracts:
| Whole Share Splits
Number of contracts increase;
| Strike price reduced
49
Adjustments to contracts:
| Fractional splits and stock dividends
No change to contracts #;
Strike and # of shares adjusted
I.e. 20% stock dividend (120% of original)
1.2 x 100 = 120 shares covered
Strike / 1.2 = New Strike
50
Adjustments to Contracts:
| Reverse Stock Splits
No adjustment to contracts; deliverable and price is adjusted if exercised
```
I.e. ABC Split 1:3
1ABC Jan 20 Call
Deliverable becomes 100/3=33.33 shs
$20 x 3= $60
**Fractional shares always paid in cash, whole 33 shs delivered**
```
51
Minus-Plus Strategy
Long Put - maximum gain is always stock goes to “0”
Maximum loss is premium
52
Minus-Minus Strategy
Long Call - unlimited potential gain
Maximum loss is premium paid
53
Long Call Spread
AKA. Debit Spread; net debit from strategy opening; net buyer of position; purchased call strike is lower than written strike
54
Short Call Spread
AKA. Credit Spread; results in net credit from strategy opening; written call strike is lower than purchase; net seller on the underlying
55
Long Put Spread
AKA. Debit spread; net debit from opening strategy; long put strike is higher than written strike; net seller of the underlying
56
Short Put Spread
AKA. Credit spread; net credit received from opening strategy; strike on written option is higher than purchase; net buyer of the underlying
57
Calendar Spread; “Time” spread; “Horizontal”
Same strike and side of options, different expiration date
58
Price Spread; “Vertical” spread
Only difference is price resulting in the standard Long/Short, Call/Put spreads.
59
Diagonal Spreads
Combine strike price and expiration differences in the strategy
60
Butterfly Spread
Market is expected to be flat. Combination of bull and bear spreads. Maximum gain at central strike (the written positions or “body”). Strike is the same in the body.
61
Maximum loss of Butterfly
Debit paid on spread
62
Maximum Gain of Butterfly
Central strike price in the “body.”
63
Upside Breakeven for Butterfly (Calls)
Difference in strike prices, net of debit, added to lowest strike
I.e.: Lowest strike = $50; highest strike = $70; Debit = $2; Difference between wings = $20; $20-2=$18; 18+50= $68 Breakeven
64
Downside Breakeven of Butterfly (Calls)
Difference in strike prices, net of debit subtracted from highest strike
I.e.: Lowest strike = $50; highest strike = $70; Debit = $2; Difference between wings = $20; $20-2=$18; 18-70= $52 Breakeven
65
Condor Spread
Market is expected to be flat. “Wider body” than butterfly; characterized by vertical spread between written contracts in the “body”
66
Condor Maximum Gain (Calls)
Between the body spreads; Lower strike written call and higher strike written call
67
Iron condor
Market neutral; consists of Call Spread and out-of-the-money Put Spread; strikes are stacked as credit spreads on both sides.
68
Iron condor maximum gain
Credit Spread from written Calls and Puts. Market remains in the middle of the “body”
69
Debit Spread Profitable
Premiums widen
70
Credit Spread Profitable
Premiums narrow
71
Delta Neutral Strategy
Market expected to be volatile; Delta (premium volatility) is phased out with small price changes; Long Straddle at the money is perfect example.
72
“Covered” Straddle
Long stock @ $50, short a call and put at $50. Income generation
73
Automatic Exercise
Options exercised if at least $0.01 in the money
74
Options Disclosure Agreement
Provided to customer no later than options account approval
75
Options Clearing Prospectus
Provided at customer’s request
76
Assignment of Exercise Notices
OCC receives exercise notice from brokerage firm, OCC randomly assigns to short contract.
Firm can then assign FIFO or randomly. **Cannot change methodology**
77
Stock delivery on Exercise
2 business days after exercise date
78
Exercise Call to receive dividend by…
At least 1 day before Ex-date (because stock is delivered exercise + 2 business days and record date is 1 day after ex-date)
79
Exercise Put (Long stock/ Long Put) after __________ to retain dividend.
After ex-date
80
Position Limits
Applies to individuals and parties “acting in concert” or with “common control” and only on same side of trade, I.e. Long call and short put.
81
Position limits most commonly impact…
Registered Rep taking discretion on number of options accounts
82
3 possible Covered Writing Scenarios (Calls and Puts)
1. Long underlying stock (short calls) or cash/margin available (short puts)
2. Debit Spreads: Long same options series with lower strike (call) or higher strike (put) than written contract.
3. Long an escrow receipt (Stock held away at a bank; calls) or Bank guarantee (Bank credit letter or proof of cash dep.; puts)
83
XMI
Major Market Index: 20 of DJIA stocks, tracks with 99% accuracy, traded on AMEX. Somewhat obsolete after DJX initiated in 1997.
84
OEX
S&P 100, traded on CBOE as of 1983
85
SPX
S&P 500 options, traded on CBOE as of 1984
86
DJX
Dow Jones Industrial Average options, traded on CBOE as of 1997. Covers all 30 stocks
87
Index options European trading cut-off
“AM” settlement; trading stopped third Thursday of the month before expiration, closed on Friday morning.
88
Index Options American trading cut-off
“PM” settlement; traded through 3rd Friday of the month until close of NYSE at 4:00pm
89
Hedging Formula with Index Options
Market Value of portfolio / Strike = Number of Contracts
90
Beta-adjusted Hedging with Index Options
Beta x (Market Value of portfolio / Strike Px) = Number of Contracts
91
BuyWrite Index Options
“BX” stands for BuyWrite
BXM - S&P 500
BXD - DJIA
BXN - Nasdaq 100
1-month forwards, premium based on VWAP.
92
Treasury options value for margin
Face value, not market value
93
Currency Options
European style; settlement in 1 or 2 business days (depends on trading frequency) in cash; 24 hr trading; traded on Philadelphia Exchange (PHLX); Exercise value determined by Federal reserve 12:00pm on the 3rd Friday of the month (AKA “Buying Rate”)
94
Foreign Currency Contract Size
10,000 units of currency; **except Japanese Yen is in 1,000,000**
95
Forex Options Multiplier
100
96
Position limits on Forex Options
200,000 on same side of market in single currency
97
Required info for Options New Account
Name, Address, “Cash or Margin,” DOB, telephone number, SSN/ TAX ID (W-9), Occupation and Employee name, Employment Status
**SEC Rule 17a-3**
98
Independent Verification of New Options account info
As of Oct. 2003 verified by Equifax
99
Additional New Account details for suitability
- Trading history, objective
- financial situation
- marital status/ number of dependents
- net worth
- liquid net worth
- estimated annual income
100
Special Statement for Naked Writers
Includes a number of disclosures about potential risks.
101
Options agreement signed and delivered by…
15 days after account opening
102
In-branch BOM/ROP not required if…
Fewer than 4 registered reps in an office
103
BOM
Branch office manager, Series 9/10 registered. Not qualified for overall supervision.
104
ROP
Registered Options Principal, Series 4 registered and can do anything a BOM can do. Also conducts overall supervision.
If located in different office: Must alternate review responsibility every 2 years, not sit in same office as producing manager
105
Professional customers
+390 trades/day, get special discount 3-25%; Special notation of “W” instead of “C” - retail customer - on their orders;
106
SEC Rule 17a-3
Covers required information and records held for options traders.
107
Must provide new account info to customer within ___ days
30
108
Must Reconfirm Account Info every ___ months
36
109
Limited trading Authorization
But and Sell orders can be entered but no funds can be withdrawn
110
Trade considered “Discretionary”
If more than price and time are selected; Size and/or security chosen by broker
111
Verbal Discretion for…
Only price and time, only good for that day
112
Discretionary order tickets retained for ___ years
3
113
ROP Must Keep records of…
Customer background and financials and 6 months of prior statements kept in Branch AND Supervisory location
114
Definition of “Sales Literature”
Communication sent to more than 25 existing or prospective clients; requires advance approval
115
“Promptly” definition
Deliver (i.e. trade confirms) within no less than the business day following trading
116
Margin Deposit for Credit Spread
Difference in strike prices less the net credit from premiums received
117
Margin deposit for debit spreads
Net Premium paid - this is the maximum potential loss
