Options

1
Options

• The Beginning

2
Terminology (Jargon)

• Underlying
• Call
• Put
• Exercise price
• Strike price
• Option premium (price)

3
Terminology (Jargon)

• Moneyness
• In the money (deep)
• At the money
• Out of the money (deep)

4
Terminology (Jargon)

• Spread
• Combination
• American option
• European option (which one is worth more, ceteris
  paribus?)

5

• Zero sum game why do it?
• Utility max reasons options as a consumption
  good
• Market imperfections like restrictions on short
  sales, margins, transaction costs

6

• Options contract specified by exchange,
  standardized
• Exchange traded stock options 100 shares, third
  Friday, certain months (cycle), strike price

7
Exchanges

• CBOE www.cboe.com
• PHLX www.phlx.com
• AMEX www.amex.com

8

• Quotes see WSJ

9
Trading

• Market maker own account
• Floor broker trades for others (commission)
• Order book official employee of exch. Acts
  like a specialist (AMEX PHLX have specialists)
• Exchange official support

10
Orders

• Buy/sell
• Call/put
• Open/ close
• Cover/ uncover
• Day/GTC
• Mkt/lmt/stp/stl

11

• OCC
• http//www.optionsclearing.com/

12
Margin

• Buy 100
• Covered call (writing)-margin on stock
• Naked call
• Naked put
• Initial
• In the money 100 of proceeds 20 of value
  of stock
• Out of the money 20 of value less amount out
  of money or 10 of value plus option proceeds
• Maintenance mark to market

13
Commissions

•   OPTIONS
• Buys or Sells 20 1.75 per contract 29
  minimum Combinations Considered two separate
  orders
•   STOCKS Listed Stocks1 14.95 Nasdaq
  Stocks 19.95 Limit Stop Orders 19.95