992 
Option purchase and spread, combining, 339-341 (see 
also Spreads combining calls and puts) 
Options: 
arbitrageurs, role of, 19-21 
risk arbitrage, 21 
assignment, 7, 16-17 
anticipating, 18-22 (see also Assignment) 
margin requirements, 15-17 
classes and series, 5-6 
closing transaction, 6 
commissions, 17-18 
definition, 3-4 
as derivative security, 4 
"European" exercise options, 7 
exercising, 6-7, 15-16 
after, 17 
early, due to discount, 19-20 
early, due to dividends on underlying stock, 20-22 
premature, 19-22 
holder, 6 
in-the-money, 7, 8 
LEAPS, 5 
symbols, 26-27 
markets, 22 (see also Option markets) 
open interest, 6 
opening transaction, 6 
option price and stock price, relationship of, 7-9 
order entry, 32-34 
good-until-canceled order, 34 
information, 32 
limit order, 33 
market order, 32 
market not held order, 33 
stop-limit order, 33-34 
stop order, 33 
out-of-the-money, 7 
parity, 8-9 
premature exercise, 19-22 (see also Options, exercis­
ing) 
premium, 7-8 
price, factors influencing, 9-15 (see also Price of 
option) 
profits and profit graphs, 34-35 
specifications, four, 4 
standardization, 4-5 
expiration dates, 5 
striking price, 5 
symbology, 23-27 
CBOE's Web site, 23 
expiration month code, 23 
LEAPS, 26-27 
option base symbol, 23 
stock splits, 27 
striking price code, 24-25 
summary, 27 
wraps, 25-26 
time value premium, 7-8, 11 
trading details, 27-32 
limit order, 28 
one-day settlement cycle, 28 
position limit and exercise limit, 31-32 
rotation, 28 
value, 4 
as "wasting" asset, 4 
writer, 6 
Index 
Options to buy, selecting, 101-103 (see also Call buying) 
Options Clearing Corp. (OCC), 6, 15-16, 673 
Options on futures, 660-673 (see also Futures and 
futures options) 
Options and Treasury bills, buying, 413-421 
advantages, 413, 421 
annualized risk, 416-418 
excessive risk, avoiding, 420-421 
how strategy works, 413-421 
risk adjustment, 418-420 
risk level, keeping even, 415-416 
summary, 421 
synthetic convertible bond, 414 
Order entry for options, 32-34 (see also Options) 
Original Issue Discount (OID), 592-593 
Out-of-the-money: 
call spread, 222-225 
covered writes, 43-45, 93 
definition, 7 
for put options, 246-247 
Outright option purchases and sales, effect of, on 
implied volatility changes on, 757-762 
Pairs trading, 454-455 
Parity, 8-9 
Percentile of implied volatility approach, 814-818 
composite implied volatility reading, 815 
historical and implied volatility, comparing, 817-818 
PERCS (Preferred Equity Redemption Cumulative 
Stock), 91, 619-637 
call feature, 620-622 
redemption price, 622 
sliding scale, 620-621 
covered call write, equivalent to, 622-623 
definition, 619 
life span, 619 
owning as equivalent to sale of naked put, 626 
price behavior, 623-625 
strategies, 625-636 
delta of imbedded call, using, 630-631 
hedging PERCS with common stock, 631-6:32 
issue price, determining, 633-634