Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key

image

Play button

image

Play button

image

Progress

1/47

Click to flip

47 Cards in this Set

  • Front
  • Back
Delta?
The rate of change of option value with respect to changes in the underlying asset's price.
How is delta represented?
A number between 0.0 and 1.0 for a call and 0.0 and -1.0 for a put. Commonly presented as a percentage of the total number of shares represented by the option contract(s).
What is the relationship between delta and the probability that a call will end in the money?
The absolute value of delta is approximately the probability that the option will expire in-the-money. (The correct, exact calculation for the probability of an option finishing in the money is its Dual Delta, which is the first derivative of option price with respect to strike.)
Vega?
Vega measures sensitivity to volatility.
How is vega expressed?
Vega is typically expressed as the amount of money, per underlying share the option's value will gain or lose as volatility rises or falls by 1%
Theta?
measures sensitivity of the value of an option to the passage of time (see Option time value).
How is theta measured?
the amount of money, per share of the underlying that the option loses in one day
Intrinsic value?
The intrinsic value for an in-the-money option is calculated as the absolute value of the difference between the current price (S) of the underlying and the strike price (K) of the option, floored to zero.
Covered Call
Call option for which the seller/buyer owns the underlying stock.
Naked Put
TBD
Calendar Call
TBD
Long Call
TBD
Bear Call Credit
TBD
Naked Call
TBD
Iron Condor
TBD
Long Put
TBD
Collar
TBD
Covered Combination
TBD
Bull Call Debit
TBD
Calendar Put
TBD
Iron Butterfly
TBD
Bear Put Debit
TBD
Covered Put
A put option for which the seller/buyer owns the underlying stock.
Long Straddle
Buy ATM calls and ATM puts (same #; same strike, same exp. date)
Expect big move up or down, or increase in IV
Risk: $ of options
Reward: unlimited
(When stock is near a strike price.)
Short Straddle
TBD
Custom Spreads
TBD
Married Call
TBD
Married Put
TBD
Short Collar
TBD
What is a call option?
A contract that gives the owner the right (but not the obligation) to buy the underlying stock at a specific price (strike price) by a specific date (expiration date).
What is a put option?
A contract that gives the owner the right (but not the obligation) to sell the underlying stock at a specific price (strike price) by a specific date (expiration date.)
What happens when I sell a call?
I receive a premium or credit (call value). The buyer of the call then has the right (but not the obligation) to exercise (buy) the underlying stock from me at the strike price up to the expiration date regardless of what the stock is selling for on the market. I can also buy back the call.
What happens when I buy a call?
I pay a premium or debit (put value). I have the right (but not the obligation) to buy the underlying stock at the strike price up to the expiration date. I can also sell back the call.
What happens when I sell a put?
I receive a premium or credit (put value). I am the obliged to buy the underlying stock at the strike price up to the expiration date regardless of what the stock is trading for. If I do not own the stock, I have to buy it at the current market price to meet my put obligation.
I can also buy back the put.
What happens when I buy a put?
I pay a premium (debit) of the put value. I then have the right to sell the underlying stock at the strike price up to the expiration date regardless of the market value of the stock. I can also sell back the put.
How can I make money selling calls?
If the call expires (i.e., is not exercised by the exercise date because the stock is below the strike price), I keep all the premium I received.
If the stock rises above the strike price and the call is exercised, I also make any difference between the price of the stock at the time I sold the call and the call strike price.
I can also buy back the call at a lower price than I sold it for and keep the difference as a credit.
How can I make money buying calls?
If the stock rises above the strike price more than the premium I paid for the option, I exercise the call and then purchase the stock for the strike price regardless of what it is trading for in the market. If I then close the position (e.g., sell the stock, I make the difference between the strike price and the current market price.
How can I make money buying puts?
If the stock is trading below the put strike price by an amount greater than the premium I paid for the put and I exercise the put (e.g., sell the stock at the strike price), I receive more money than the stock is selling for.
How can I make money selling puts?
If the put expires without the put being exercised, I keep the premium received.
Bid
What a buyer is offering to pay for an option.
(Sellers always want more.)
Ask
What a buyer has to pay for an option
(Sellers "ask" for this much.)
Long Strangle
Buy OTM call above current price;
Buy OTM put below current price.
Same exp date & number.
Expectation: Large movement up or down; or increase in IV
Vertical Spreads
Option positions that combine buying or selling calls or puts for the same underlying security.
Long Vertical Call
2 calls, both OTM.
Long (buy) lower strike;
Short (sell) higher strike.
Same month.
Bullish position.
Long Vertical Put
2 OTM puts:
Long (buy) put nearer strike;
Short (sell) put further OTM strike.
Same month
Bullish to neutral
Short Vertical Put
2 OTM puts:
Long (buy) above strike;
Short (sell) below strike;
Same month.
Bearish strategy
Short Vertical Call
2 OTM calls:
Short (sell) below strike;
Long (buy) above strike;
Same month.
Bearish