Options trading for dummies quizlet

Foreign currency options expire on Friday before third Wed of the month. No member organization shall be approved to transact options business with the public until those persons associated with it who are designated as Options Principals have been approvedand registered by Exchange. Canadian dollars covered by contract. Investor bought a call and a put with same strike price, or sold a call and a put with the same strike price. Sellers make what gamblers put down, and could a lot more. Buyers can only lose amount put down and make a lot more. Est on the Saturday immediatly following the 3rd Friday of the expiration month.

To increase income or yield, sell an option. The uptick rule prevents short sellers from adding to the downward momentum when the price of an asset is already experiencing sharp declines. If credit spread narrows, seller makes amount narrowed. Advertis in which only reference to options is contained in a listing of the services of a memeber org. Can go in the money and still lose money. Ordinary options are offered 9 months into future. Long calls, short puts. Risk could rise, who bets stock might rise?

Risk stocks could fall, risk is pointing down. Hedging, identify the risk and you bet that way. Bet on something going down? For best hedge or protection, buy an option. Long puts, short calls. If short stock, you want stock to fall. If you are long stock, you want the stock to rise. Bears buy puts and sell calls.

Same number used for position limits are used for exercise limits. Persons engaged in management of the member org business designat as Options Principals. Calls with lower strike prices are worth more. Buyers are gamblers, sellers are bookies, buyers make bets. Each equity options contract covers 100 shares. SEC that requires that every short sale transaction be entered at a price that is higher than the price of the previous trade. Put Mar 60 more than Put Mar 50. Canadian dollar can be purchased at the strike price of 75 American cents. Mar 50 call worth more than Mar 60 call. Bet between buyer and seller.

Puts at higher strike prices worth more. Manager could hedge against i rates rising by selling calls to increase income or by buying puts for protection. IV; the purchase of an interest rate call is profitable when interest rates rise, since if interest rates go up, the premium will increase. The sale of an interest rate put will also be profitable when interest rates rise. What is the market price of the stock at which the customer breaks even? No margin is required on the short option. This position would be BEST described as which two of the following? WLD stock which has a strike price that is lower than the call that Mr. The customer will not realize a profit or a loss of money on the positions listed. The market value of ABC goes to 64 and the customer exercises the call.

Assuming that the put expires without being exercised, your customer will realize how much profit or loss of money? Which of the following influence the premiums of a listed option? Equity options are also used to hedge stock positions. They provide insurance or protection against the price of the underlying stock moving in the wrong direction. Covered Call writing would be the best choice for the investor, who wants to increase their rate of return on large portfolio of Blue Chip Stocks when they expect the market to remain neutral or decline slightly in value. The value of an option, or premium, is affected by the volatility of the underlying security and reacts to changes in interest rates as the market price of the stock changes. The customer then sells the shares of ABC at the market price. All the calls expired worthless. The only option position listed that would interrupt or eliminate the holding period of a stock held for less than 1 year would be the purchase of the put on the same underlying stock.

The put allows the investor to sell 100 shares of the underlying stock at a specific price, but does not give the investor the ability to acquire that stock. Being long the underlying stock or showing evidence of ownership via depository or escrow receipt are ways of showing coverage. The value of an equity option is affected by which of the following? One of your customers regularly trades in options. The liquidity of the underlying security. Which two of the following positions represent unlimited risk? In terms of the exercise, what price will the client report for tax purposes in relation to the price at which the stock is sold to the buyer of the call? An investor has a large portfolio of Blue Chip common stocks and expects the market to remain stable or decline slightly.

Sell stock at a premium above the current market price. The stock is treated as a short sale. The investor is long 100 shares of the underlying stock. Trading in the options is also halted. Equity options also provide leverage because a small known premium paid to buy an option provides control over a large stock position and magnifies the investment results. Which of the following would be the best choice for this investor? The long put would NOT cover the sold call, because long puts lock in a price at which stocks can be sold, not purchased to cover.

Covered vs uncovered is not specified in the question. WL September 100 call for 10 and buys 100 shares of WL stock at 105. The volatility of the underlying security. The client exercises the option after substantial market declines in QRS. Covered Call writing would provide the customer with income and some downside protection which would be the best choice when the customer has a large portfolio of blue chips stocks and is looking for additional income. Which of the following does NOT cover this short call in Mr. Equity options are now considered to be a distinct asset class. Both of these positions involve uncovered call writing, the riskiest type of option. This results in the customer having no profit or loss of money on the position.

The purpose of diversification is to reduce risk. The settlement date for the called stock is? Options can be more liquid than the security itself, due to the trading volume in options. An investor sells a call contract in their account. The call is treated as a naked option. What is the tax consequence to the client? Premiums are affected by the liquidity of the underlying security.

If the customer is assigned an exercise notice when the price of the stock is 110, the profit or loss of money per share would be? The investor is long a separate call contract with a strike price that is lower than the strike on the sold call. The relationship between the strike price and the market price of the underlying security. The only answer that does not provide coverage for the investor is the purchase of a put contract. Changes in interest rates. One of your clients regularly trades options. Sellers of options may have to be concerned about adjustments to cost basis if there were an exercise, but due to the lack of control of exercise do not have to worry about interruptions or elimination of accumulated holding period. The straddle refers to both positions. Had the options been exercised then the sales proceeds of the stock would be adjusted by the premiums received. This amount is added to the strike price in terms of overall proceeds on the transaction.

As such, they can be bought to provide diversification across several asset classes. For example, buying a Call to protect a short stock position. Since the difference between the premiums results in a net minus it would be a debit and since we have a buy and a sell on the same type of option on the same stock it is a spread. Convertible bonds can also be used to cover a call, because they can be converted to the underlying stock. The long call with a lower strike price covers the seller, because it provides the opportunity for the seller to buy the stock at a lower price if there is an exercise against the short call. Which of the following will affect the holding period of a stock that has been held for less than 1 year? Hedge a short stock position. Long writes a call on WLD stock. The investor then decides to exercise the long ABC 60 Call when the market price is at 64. The investor provides evidence of a depository receipt or escrow receipt showing ownership of several hundred shares of the underlying stock.

They would have to come up with the cash required to purchase stock. The customer must deposit an amount equal to the call premium. The investor is long a separate put contract with a strike price that is lower than the strike on the sold call. BCD June 35 call for 7, at what market price will the customer break even? This document states that the customer has read the disclosure document, understands the risks of options trading and will honor position limit rules. Must be returned no later than 15 days after the account approval.

Involves selling more calls than the long stock position covers. Must be provided at or before the account approval. Reflects the current open interest in teh trading of put options to call options. Requires to register with SEC and be regulated as broker dealers, since Exchanges are self regulated organizations and things like ECNs were in between, thus not regulated. SEC requires that member firms route their orders to the market that is posting the best available price. Was an electronic bulletin board for banks, etc to list trades and bypass brokers. Alternative display facility to show ECN quotes. Subscriber could call listing firm directly to save a lot of money.

If a customer requests specifically for a price to not be displayed, it going into a dark pool and will be hidden legally. Limit Order Display Rule makes sure the best prices are always known in the market. Each broker dealer to notify each new customer at act opening and annually, its policy regarding receipt of payment for order flow, the policy for routing of each new customer order that is subject to order flow payment. In essence, the firm is given a rebate for using that specific market as opposed to others. Archipelago for electronic trading. The SEC permits this practice, but requires that the firm discloses this information on the customer trade confirmation, and on request the firm disclose to the customer which market their trades went to 6 months prior. He wants to buy above resistance since it will rise sharply if so. Wholesalers of securities and only deal with member firms of NYSE.

Also firms provide quarterly reports, and show 10 largest markets or market makers, market and firms relationship, and arrangements if any. Was made to create competition on the NYSE. Display facility run by FINRA. Just displays quotes for traded companies that are not listed on any exchange. Is open 24 hours a day. He wants to sell below support because it will drop more.

Paying for order flow. SEC wrote in 1998. Requires quoting market centers to offer automatic execution of orders and cannot discriminate by giving some people faster connection. AKA stock stays in two boundaries, but once it leaves the boundaries it does so a lot, so that is the time of change to buy or sell. Over the counter bulletin board. Market centers prepare and make available to the public monthly standardized reports summarizing order executions. NASDAQ bought it in 2005.

Not an exchange because it has no trades and not a self regulatory organization. Exhanges and market makers display customer limit orders publicly so that they can be seen by all investors. No longer around in this form. Was around during the time of fixed commissions. Effective spreads, how various size orders were executed, spread execution, fill rates, and price improvement. At what stk prices will you break even on the spread? You establish spread on Mylan by buying a DEC 40 call and writing a DEC 45 call. What is the most you will lose on this position?