Ch14: Options Basics & Hedging

Long put =

right to buy

Short call =

obligation to sell

Long call =

right to sell

Short put =

obligation to buy

Steps to open an options account:

do KYC diligence, provide Options Disclosure Document, the account is approved by a registered options principal Series 4 holder or a branch office manager, then the client returns a signed options account agreement within 15 days of account approval

The … makes the Options Disclosure Document

Options Clearing Corporation

Client’s can’t … before getting the ODD

receive any sales materials

If the sighed Options Agreement isn’t returned in …, the customer has to …

15 days, the cusomter has to sell out of all positions and can’t exercise any options

1 options contract =

100 shares

Monthly equity options expire on

the third Friday of the expiration month

Call option ITM when

strike price is less than market price

Put option ITM when

strike price is higher than market price

Intrinsic value =

strike price minus market price

Time value of an options contract is the

portion of the premium attributed to the time remaining to expiration and equals the premium - intrinsic value

The longer the time to expiration, the greater the

time value of the option

The premium charged by the writer of an options contract will be higher when … and …

there is more intrinsic value and longer time to exipiration