Listed Options and Their Characteristics
Chapters in this video
- 0:00 The Carla and Sam options nightmare scenario
- 1:17 Buyer rights versus seller obligations on calls and puts
- 2:46 The 100-share contract and the per-share premium trap
- 4:17 T+1 settlement and the only negotiated term
- 5:11 Even splits, odd splits, and aggregate value
- 6:53 Stock dividends versus the ordinary cash dividend trap
- 7:41 Rapid-fire exam recap
What this video covers
- Why the buyer (holder) owns the rights and the seller (writer) bears the obligations, and how that maps to call versus put contracts
- Why a call buyer is bullish, a put buyer is bearish, and the seller always takes the opposite market sentiment
- The standard equity contract size of 100 shares, and why a premium quoted at 4 means a total cost of $400, not $4
- T+1 physical settlement after exercise, and why the premium is the only term negotiated between buyer and seller
- How even splits (2-for-1, 4-for-1) multiply the number of contracts while keeping the 100-share size, with the strike price dropping proportionally
- How odd splits (3-for-2, 5-for-4) and stock dividends keep the number of contracts the same but adjust the strike and deliverable shares per contract
- The classic ex-dividend trap: an ordinary cash dividend triggers zero adjustment to the options contract, even though the stock price drops on the ex-date
Read the full lesson, free
This video's complete written lesson is free to read in the CertFuel app, no signup wall. When you're ready to drill the topic, the full Series 7 course adds adaptive practice questions and spaced-repetition flashcards.