Unit 10: Options Flashcards
Days for customers to sign and return the option agreement?
15 days
Call Intrinsic Value
Stock $ - Exercise $
Put Intrinsic Value
Exercise $ - Stock $
Option Premium =
Intrinsic Value + Time Value
Best hedge if long stock…
buy a put
Protective put
Long stock
Long put
Covered Call
Long stock
Short Call
Generate premium income but limit stock appreciation
Long Straddle
Buy 1 call
Buy 1 Put
Volatility play
Short Straddle
Sell 1 call
Sell 1 put
Seeks neutrality, income with lots of risk
Call’s dominant position
Lower strike price
Put’s dominant position
Higher strike price
Calendar Spread
Later expiration is dominant
Debit Spread
Buying dominant position
spread Widen
premium you paid
Credit Spread
Selling dominant position
spread Narrow
premium you earned
Vertical Spread
Strike $ is different
Horizontal Spread
Months are different
Diagonal Spread
Strike $ and Months are different
Butterfly Spread
Options needed: 4
Different strike prices: 3
Expiration dates: 1
Profit in the middle
Collar
Long Stock
Long Put
Short Call
Downside protection & Income
Long Straddle
Long Put
Long Call
Volatility is expected
Short Straddle
Short Put
Short Call
Hopes option will expire, neutral
Options in ERISA-qualified retirement plans?
Yes, as long as they conform to the objective
Index Options
Use: portfolio insurance, generate income
100x multiplier
Writer delivers CASH on next business day
FX Options
Hedge or speculate against currency risk
100x multiplier
Writer delivers CASH on next business day
