35 lines
2.5 KiB
Plaintext
35 lines
2.5 KiB
Plaintext
Chapter 1: Definitions s
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Striking Price. Striking prices are generally spaced 5 points apart for stocks,
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although for more expensive stocks, the striking prices may be 10 points apart.
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A $35 stock might, for example, have options with striking prices, or "strikes," of
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30, 35, and 40, while a $255 stock might have one at 250 and one at 260.
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Moreover, some stocks have striking prices that are 2½ points apart - generally
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those selling for less than $35 per share. That is, a $17 stock might have strikes
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at 15, 17½, and 20.
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These striking price guidelines are not ironclad, however. Exchange officials
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may alter the intervals to improve depth and liquidity, perhaps spacing the strikes 5
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points apart on a nonvolatile stock even if it is selling for more than $100. For exam
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ple, if a $155 stock were very active, and possibly not volatile, then there might well
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be a strike at 155, in addition to those at 150 and 160.
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Expiration Dates. Options have expiration dates in one of three fixed cycles:
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L the January/April/July/October cycle,
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2. the February/May/August/November cycle, or
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3. the March/June/September/December cycle.
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In addition, the two nearest months have listed options as well. However, at any given
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time, the longest-term expiration dates are normally no farther away than 9 months.
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Longer-term options, called LEAPS, are available on some stocks (see Chapter 25).
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Hence, in any cycle, options may expire in 3 of the 4 major months (series) plus the
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near-term months. For example, on February 1 of any year, XYZ options may expire
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in February, March, April, July, and October - not in January. The February option
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( the closest series) is the short- or near-term option; and the October, the far- or long
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term option. If there were LEAPS options on this stock, they would expire in January
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of the following year and in January of the year after that.
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The exact date of expiration is fixed within each month. The last trading day for
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an option is the third Friday in the expiration month. Although the option actually
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does not expire until the following day (the Saturday following), a public customer
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must invoke the right to buy or sell stock by notifying his broker by 5:30 P.M., New
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York time, on the last day of trading.
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THE OPTION ITSELF: OTHER DEFINITIONS
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Classes and Series. A class of options refers to all put and call contracts on the
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same underlying security. For instance, all IBM options - all the puts and calls at
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various strikes and expiration months - form one class. A series, a subset of a class, |