10: OPTIONS (456) Flashcards
T/F: Normally, purchasing a put option on stock held less than the long-term holding period causes the existing holding period on the stock to be erased, but not in the case of a married put
True
T/F: A married put has a special tax benefit
True
“A protective put, or married put, is a portfolio strategy where an investor buys shares of a stock and, at the same time, enough put options to cover those shares. In equilibrium this strategy will have the same net payoff as buying a call option.”
T/F: A married put is a specific type of protective put
True
(Has special tax benefit)
“A protective put, or married put, is a portfolio strategy where an investor buys shares of a stock and, at the same time, enough put options to cover those shares. In equilibrium this strategy will have the same net payoff as buying a call option.”
T/F: Anytime a put option is purchased while the investor is long the underlying stock, it is considered a protective put
True
T/F: Any investments that have a holding of less than one year will be short-term hold
True
How long to hold an investment before it is considered “long term holding period”
MORE than 12 months
If I buy stock and sell it exactly 1 year later, is it a long term holding period
No
Has to be more than 1 year
When assigned on an option contract, how long do you have to deliver the stock?
Two business days
“The assigned party must either deliver (for a call) or buy (for a put) the stock in two business days (regular way settlement for stock transactions).”
If your client expected short-term interest rates to fall, you might recommend that the client
A) buy a Treasury bond yield-based put. B) buy a Treasury bill yield-based call. C) write a Treasury bill yield-based call. D) buy a Treasury bill yield-based put.
D) Buy a Treasury bill yield-based put
“The key to debt options is that the investor is betting on the movement of interest rates, not the price of the security. As with any other investment based on downward movement (put down), the strategy called for here is buying a U.S. Treasury bill put option. Why not the Treasury bond put? Because the question refers to short-term rates and Treasury bonds are a play on long-term ones.”
Short stradddle
Write put and write call same strikle
Outlook: market will remain stable
Synthetic long stock
Buy ATM call
Sell ATM put
T/F: Option margin is the cash or securities an investor must deposit in his account as collateral before writing - or selling - options
True
> No buying options on margin
Margin for options just refers to collateral
T/F: The options disclosure document must be recieved at or before the time of account approval, but the options AGREEMENT doesn’t have to be SIGNED and RETURNED until 15 days after account approval
True
> ODD, at or before account aproval
Options AGREEMENT, signed and returned within 15 days of account approval
When do yield based options expire
Third Friday of expiration month
“Yield-based options expire like stock options—on the third Friday of the expiration month, which is the last day of trading”
Due to a distribution of stock, the contract size in the JGH Oct 50 call options is 108. A customer purchasing one of these contracts for a premium of 2½ would expect to pay
A) $270. B) $330. C) $250. D) $258.
A) $270
“Explanation
With a contract size of 108 shares (likely from an 8% stock dividend) and a premium of $2.50 per share, the total cost is $270. Regardless of the reason for the contract size being other than 100 shares, the price paid for an option is always the premium multiplied by the number of shares in the contract. In this question, that would be a premium of $2.50 per share (2½) times 108 = $270.00.
LO 10.j”
