Equity Options Flashcards

Questions and Answers

A 'series' of options is?

All option contracts of the same type covering the same underlying stock.

All option contracts of the same type.

All option contracts of the same class having the same expiration date, exercise price, and unit of trading. (correct)

All option contracts of the same class having the same expiration date and unit of trading.

A customer writes 1 ABC July 30 put for 4. The maximum loss potential to the customer is?

$400

$2,600 (correct)

$3,400

$3,000

Of the options transactions listed below, which one is required to indicate whether the position is 'covered' or 'uncovered'?

Closing Purchase

Opening Sale (correct)

Opening Purchase

Closing Sale

All of the following are true of covered call option 'writing' EXCEPT:

The premium received guarantees the writer cannot have a loss on the underlying security. Signup and view all the answers

A customer buys 1 XYZ October 50 call at 3. He later exercises the option when XYZ is selling at $60 per share. The cost basis of the 100 shares for Federal tax purposes is?

$5,300 Signup and view all the answers

If an investor writes a put and the option expires unexercised, the maximum potential gain on this position is:

limited to the premium Signup and view all the answers

A client performs the following transactions: Buys 1 ABC Feb 45 Put @ 3, Buys 100 shares of ABC common stock at $45 per share. What would the client's maximum profit potential be in this situation?

unlimited Signup and view all the answers

Which of the following is NOT required in order to open an options account?

The RR must provide a written explanation of why he believes the account is suitable. Signup and view all the answers

Regular-way settlement for options transactions is?

T+1 Signup and view all the answers

Mr. Long writes a call on WLD stock. Which of the following does NOT cover this short call in Mr. Long's margin account?

A long put on WLD stock which has a strike price that is lower than the call that Mr. Long is writing. Signup and view all the answers

Mr. Smith is retired. He has a portfolio of blue chip stocks. The option strategy best for him to increase the rate of return on his portfolio would be:

Covered call writing Signup and view all the answers

If an investor buys a call option contract on the S&P 500 Index, what will the investor receive when exercising the call?

The difference between the strike price on the contract and the market price of the index at the close of trading on the day of exercise, in cash. Signup and view all the answers

Listed options contracts are standard contracts that are issued by and guaranteed by:

The Options Clearing Corporation Signup and view all the answers

Study Notes

Equity Options Study Notes

A "series" of options consists of all contracts of the same class with identical expiration dates, exercise prices, and trading units.
Writing a put option on ABC at $30 for a premium of $4 leads to a maximum loss potential of $2,600.
"Covered" or "uncovered" positions must be indicated on an opening sale transaction.
Covered call writing can increase portfolio yield but does not ensure no loss on the underlying asset.
Buying a XYZ October 50 call at $3 and exercising it when the stock is $60 results in a tax cost basis of $5,300 for the shares acquired.
The maximum gain from writing a put option that expires unexercised is limited to the premium received.
A client who buys a put option and shares of the stock can potentially have unlimited profit if the stock declines significantly.
Required actions to open an options account include understanding customer financials and providing an Option Disclosure Document, but not necessarily a suitability explanation.
Regular settlement for options transactions occurs one business day after the trade (T+1).
When writing a call option, a long put contract with a lower strike price does not count as covering the short call position.
Retirees with blue-chip portfolios seeking to enhance returns should consider covered call writing as an effective strategy.
Exercising a call on the S&P 500 Index results in cash equal to the difference between the strike price and the index's market price at closing.
Listed options are standardized contracts backed by the Options Clearing Corporation, ensuring their reliability and legitimacy.

Description

Test your knowledge of equity options with this flashcard quiz. Learn key terminologies and concepts related to option contracts, series, and trading strategies. Ideal for students and professionals looking to enhance their skills in options trading.