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Series 9 > Unit 3: Multiple Option Strategies > Flashcards

Unit 3: Multiple Option Strategies Flashcards

(52 cards)

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1
Q

spread

A

purchase of one option and sale of another option of the same class (ex: call spread and put spread)

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2
Q

call spread

A

long call and short call

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3
Q

put spread

A

long put and short put

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4
Q

price spread (vertical spread)

A

only difference is strike price

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5
Q

time spread (calendar/horizontal spread)

A

only difference is expiration date

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6
Q

diagnol spread

A

difference in both strike price and expiration date

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7
Q

Spreads - Bulls buy

A

calls and call spreads

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8
Q

Spreads - Bears buy

A

puts and put spreads

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9
Q

Spreads - Bulls sell

A

puts and put spreads

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10
Q

Spreads - Bears sell

A

calls and call spreads

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11
Q

net credit

A

opening transactions result in money flowing into account (sold the spread)

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12
Q

net debit

A

opening transactions result in money flowing out of account (bought the spread)

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13
Q

Bull spreads

A

Debit call spreads

Credit put spreads

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14
Q

Bear spreads

A

Debit put spreads

Credit call spreads

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15
Q

If no premiums are shown, highest premium will be

A

calls with lower strike price

puts with higher strike price

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16
Q

Debit call spreads (long call spreads)

A

Buys the call with the lower strike price and sells the call with the higher strike price

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17
Q

Debit put spreads (long put spreads)

A

Buys the put with the higher strike price and sells the put with the lower strike price

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18
Q

Credit call spreads (short call spreads)

A

Buys the call with the higher strike price and sells the call with the lower strike price

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19
Q

Credit put spreads (short put spreads)

A

Buys the put with lower strike price and sells the put with the higher strike price

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20
Q

spread

A

difference between the premium of the two options

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21
Q

Credit spreads - maximum gain

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A

initial credit

22
Q

Credit spreads - maximum loss

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A

difference between strike prices minus the credit

23
Q

Debit spreads - maximum gain

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A

difference between strike prices minus the debit

24
Q

Debit spreads - maximum loss

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A

initial debit

25
Call spreads - breakeven
CAL (calls add to lower) - add the net premium (debit or credit) to the lower strike price
26
Put spreads - breakeven
PSH (puts subtract from the higher) - subtract the net premium (debit or credit) from the higher strike price
27
Debit spreads profit
when both contracts are exercised
28
Credit spreads profit
when both contracts expire unexercised
29
straddle
purchase of a call and put or sell of a call and a put for same underlying security, strike price, and expiration
30
long straddle
purchase of a call and a put
31
short straddle
sale of a call and a put
32
long straddle objectives
objectives: expects price to be volatile but not sure which direction; not profitable in a stable market
33
long straddle - max gain
unlimited
34
long straddle - max loss
combined premiums paid
35
long straddle - breakeven
2 breakeven points (one above strike price and one below strike price Breakeven occurs when stock price is equal to strike price plus or minus combined premiums. Investor makes money if stock price is above or below breakeven points
36
short straddle objectives
objectives: expects stock price will not change much and will not move outside breakeven points
37
short straddle - max gain
combined premiums paid
38
short straddle - max loss
unlimited
39
short straddle - breakeven
2 breakeven points (one above strike price and one below strike price Breakeven occurs when stock price is equal to strike price plus or minus combined premiums. Investor makes money if stock price is in between breakeven points
40
Long stock/short straddle
To generate income in flat market, investor can buy stock and write an at-the-money straddle. If stock doesn't move, both options expire and investor keeps premium
41
combination
purchase of a call and put or sell of a call and a put for same underlying security, but have different strike price and/or expiration date
42
long combination
purchase of a call and put on same stock with different strike prices and/or expirations
43
short combination
sale of call and put on same stock with different strike prices and/or expirations
44
long combination objectives
long combinations can be used instead of long straddles when a sharp movement in stock price is expected
45
long combination - MG/ML/BE
Max gain - unlimited Max Loss - combined premiums Breakevens - premium + call strike price; premium - call strike price (makes money outside breakeven points)
46
short combination objectives
short combinations can be used instead of short straddles when no movement is expected in the market; wants options to expire in order to collect premium
47
short combination - MG/ML/BE
Max gain - combined premiums Max Loss - unlimited Breakevens - premium + call strike price; premium - call strike price (makes money when within breakeven points)
48
strangles
type of combination that can be long or short. An out of the money combination; good strategy if customer thinks there will be a large movement in near future but uncertain which way movement will be
49
Ratio call writing
also known as variable hedging; covered and uncovered writing ex: owns 100 XYZ, writes 2 call contracts objective is to increase premium income Max gain - premiums received Max loss - unlimited
50
Ratio put writing
the sale of more options than are purchased
51
Ratio call writing
writing more calls than are being bought
52
Butterfly spreads
an aggregation of three series of eiter puts or calls in the same underlying security, having 3 evenly spaced strike prices and expiring at the same time Typically placed on volatile and more expensive stocks with strike prices 10,20, or 30 points apart

Series 9 (6 decks)

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