Understanding Options in Investing - Videos & Lessons

About This Chapter

In this chapter, you can review pertinent information about options in investing. The lessons are designed to help you boost your knowledge of the characteristics, strategies and tax implications of various options.

Understanding Options in Investing - Chapter Summary

There is much specialized vocabulary in the investment world, and this chapter focuses on what you need to know to master the subtopic of options in investing. Clear definitions are given for the basics, such as stocks, payoffs, and puts and calls. You'll also cover both basic and advanced strategies for investment options. By the end of the chapter, you should be able to:

Describe characteristics of listed options
Give an overview of an options clearing corporation
Compare and contrast American-style and European-style options
Define Long-term Equity AnticiPation Securities (LEAPS)
Understand profit and loss calculations and break-even points for options
Describe tax treatments for option transactions
List CBOE and FINRA rules in relation to options

This chapter gives you clear and concise definitions in easy-to-understand lessons to help you increase your finance knowledge. You will find all pertinent vocabulary is highlighted, allowing you to quickly review each key term when necessary. You can track your progress using our self-assessment tools, and monitor it on your Dashboard.

11 Lessons in Chapter 16: Understanding Options in Investing

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1. Options Basics: Stocks, Payoffs & Puts & Calls

Many people believe the financial markets are limited to buying and selling shares of stock. But, in addition to stock, there are other financial instruments. In this lesson, we'll learn about option contracts - one such variation of stock shares.

2. Characteristics of Listed Options

This lesson discusses listed options and then provides a description of their characteristic categories relating to their contract specifications and their roles in improving returns on investments.

3. Options Clearing Corporation (OCC): Definition & Overview

This lesson introduces you to the concept of the Options Clearing Corporation, its management composition, and the organization's role in the exercise, settlement, and guarantee of a risk-free options market.

4. American-Style & European-Style Options: Definition & Characteristics

Let's learn about the definitions of American-style and European-style options then describe the characteristics of each style of options, with respect to the terms of the contracts, quantitative, and performance aspects.

5. Long-term Equity AnticiPation Securities (LEAPS): Definition & Characteristics

In this lesson, we will learn about long-term anticipation securities (LEAPS) and the background of the CBOE (Chicago Board Options Exchange) rule 5.8. We will also look at how LEAPS work in the real world.

6. Basic Strategies & Protective Put for Investment Options

In this lesson, explore how options allow you to do with a little money what would cost much more using traditional purchases of stock or other assets.

7. Advanced Strategies for Investment Options

In this lesson we will learn about the structure of options, including put and call strategies. We will also learn about the structure of advanced options strategies, including spreads, straddles, combinations, and covered and uncovered options.

8. Profit & Loss Calculations & Break-Even Points for Options

In this lesson, we will learn about call and put options contracts and their components, such as underlying assets, strike prices, premiums, and expirations. We will also learn how to calculate profit, loss, and break-even points.

9. Tax Treatment of Option Transactions

During this lesson we will review the tax treatments and implications for various types of option transactions. There will be a short quiz after the lesson to test your understanding of the concepts covered during this lesson.

10. CBOE Rules Related to Stock Options

This lesson presents a detailed overview of CBOE Rules, starting with rules for stating definitions, to those of principles of trade, position limits, adjustments, and exercise of options contracts.

11. FINRA Rules Related to Options & Warrants

The Financial Industry Regulatory Authority (FINRA) oversees all the trading activities of U.S. investment brokers and dealers. This lesson discusses the FINRA rules pertaining to trading and making markets in derivatives like options and warrants.

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