About This Chapter
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.
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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Other chapters within the Series 7 Exam: Study Guide & Practice course
- Advertising & Public Communication in the Securities Industry
- The New Issues Market
- New Issue Regulations in the Securities Industry
- Brokerage Account Types & Restrictions
- Retirement Plans & Tax-Advantaged Accounts
- Handling Customer Investment Information & Discretionary Accounts
- Obtaining Supervisory Approvals for Investment Accounts
- Analyzing Customer Investment Profiles
- Analyzing Customer Financial Statements
- Understanding Equity Securities
- Tax Treatment of Equity Securities Transactions
- Packaged Investment Products
- Variable Life Insurance & Annuities
- Real Estate Investment Trusts
- Direct Participation Programs
- Debt Securities
- Investing in Corporate Bonds
- Municipal Securities
- Municipal Securities Analysis & Regulations
- Registered Hedge Funds
- Asset-Backed Securities
- U.S. Government Agency Securities
- Investment Product Disclosures
- Customer Updates & Record Retention
- Customer Transactions & Confirmations
- Transactional Delivery Obligations & Settlement Procedures
- Investment Disputes & Customer Complaints
- Addressing Margin Issues