Chapter 12: Options

Chapter summary

Chapter 12 covers options. Know the four basic positions (long call, short call, long put, short put), their maximum gain, maximum loss, and breakeven. Build from there to strategies: covered calls limit upside, protective puts create a floor, straddles profit from volatility, spreads limit both gain and loss. The exam tests calculation, not just identification — practice working through gain/loss scenarios with sample premiums and strike prices.

Key concepts

• Overview of Options
• Option Terminology
• Breakeven
• The Options Clearing Corporation
• Option Events
• Formulas for Basic Options Positions
• Multiple Option Strategies
• Spreads
• Butterfly Spreads
• Using Options as a Hedge (Protection)
• Using Options to Generate Income
• Non-Equity Options

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