Session 1 Flashcards

ELITE IIVII
Flashcards by ELITE IIVII, updated more than 1 year ago
ELITE IIVII
Created by ELITE IIVII over 2 years ago
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Review Session 1

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Question Answer
Call Option Call option An option contract that gives the owner the right but not the obligation to buy the underlying security at a specified price (its strike price) for a certain, fixed period (until its expiration). For the writer of a call option, the contract represents an obligation to sell the underlying product if the option is assigned.
Put Option Put option An option contract that gives the owner the right to sell the underlying stock at a specified price (its strike price) for a certain, fixed period (until its expiration). For the writer of a put option, the contract represents an obligation to buy the underlying stock from the option owner if the option is assigned.
Strike or Exercise Price The strike price is the price per share at which the holder can purchase (for Call options) or sell (for Put options) the underlying stock.
Exercise Exercise is the process by which an option buyer (holder) invokes the terms of the option contract. If exercising, Calls will buy the underlying stock, while Put owners will sell the underlying stock under the terms set by the option contract. All option contracts that are in-the-money (i.e. have at least one cent of intrinsic value) at expiration will be automatically exercised.
Expiration Date The expiration date is the last day on which the option may be exercised. Monthly listed stock options cease trading on the third Friday of each month and expire the next day. Weekly options cease trading on Friday of that week.
Premium The price of an option is called its premium. Prices are quoted per share, but premium is usually the entire dollar value of the contract (Price per share X 100 shares = total premium).
Bearish Bearish An adjective describing the opinion that a stock, or a market in general, will decline in price; a negative or pessimistic outlook.
Bullish Bullish An adjective describing the opinion that a stock, or the market in general, will rise in price; a positive or optimistic outlook.
Broker Broker A person acting as an agent for making securities transactions. An account executive or a broker at a brokerage firm who deals directly with customers. A floor broker on the trading floor of an exchange actually executes someone else's trading orders.
Underlying Security Underlying security The security subject to being purchased or sold upon exercise of the option contract.
Option A contract that gives the owner the right, but not the obligation, to buy or sell a particular asset (the underlying stock) at a fixed price (the strike price) for a specific period of time (until expiration) . The contract also obligates the writer to meet the terms of delivery if the owner exercises the contract right.
Index A compilation of several stock prices into a single number. Example: the S&P 100 Index or Dow Jones Industrial Average Index.
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