【Fidelityセミナー受講メモ】Options 101: Session 1 – Introduction to Options

Fidelityのオンラインセミナー「Options 101: Session 1 – Introduction to Options」の受講メモです。

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主催：Fidelity Investments

タイトル：Session 1: Introduction to Options

オンラインセミナーのアドレス：https://www.fidelity.com/learning-center/investment-products/options/options-101-webinar-series-recording

1. What are Options?

1.1 What are Options?

An option is a contract that gives buyers rights and sellers obligations.

BUYER Rights: Can choose to buy or sell 100 shares (typically) of the underlying security up and until the: Expiration date	SELLER Obligations: Obligated to sell or buy 100 shares (typically) of the underlying security when called upon up and until the: Expiration date
At the: Strike price	At the: Strike price
For this right, the buyer: Pays a Premium/Price	For assuming the obligation, the seller: Receives a Premium/Price

Two Exercise Styles: American (Anytime before expiration) vs. European (Only at expiration)

1.2 Why Trade Options?

Risk Management
• Individual security and potential portfolio protection
• Less money out of pocket

Yield Enhancement
• Helps improve returns on individual securities
• Helps improve overall portfolio returns

Leverage
• Less money out of pocket
• More choices

1.3 Stock vs. Options

Stock	Options
• Substantial risk of capital (stock could go to zero) • Lower break-even • Voting rights • Potential dividends • Limited strategies (Buy stock, sell short stock)	• Leverage with risk limited to premium paid • Higher or lower break-even • Limited life, decaying asset • No voting rights or dividends • Many strategies (Options give you options)

1.4 Option Buyer or Option Seller

With options, you can be either a buyer or seller.

Option Buyer	Option Seller
• Pay a premium/price • Has the right to Exercise and buy or sell 100 shares of the underlying security • Also called a call or put holder (long the option)	• Receive a premium/price • Has an obligation to buy or sell 100 shares of the underlying security at Assignment • Also called a call writer or put writer (short the option)

1.5 Types of Options

Long Call Allows the option holder (buyer) to buy 100 shares (typically) at the strike price up to the defined expiration date. Said to be LONG the call. Bullish (= you want the price to go up)	Long Put Allows the option holder to sell 100 shares (typically) at the strike price up to the defined expiration date. Said to be LONG the put. Bearish (=you want the price to go down)
Short Call Obligate the option writer (seller) to sell 100 shares (typically) of the underlying at the strike price when exercised. Said to be SHORT the call. Bearish	Short Put Obligate the option writer (seller) to buy 100 shares (typically) of the underlying at the strike price when exercised. Said to be SHORT the put. Bullish

1.6 What Happens When a Stock Splits?

Options can be adjusted in a number of ways to account for corporate events. These are called adjusted options.

Other adjustments may occur from corporate actions. Terms can be found in the option chain, or check with the Options Clearing Corp to find out the new terms of an adjusted option.

Example You own one contract for XYZ stock with a strike price of $75,the company announces a 3 for 2 stock split. How is the option contract adjusted? Old option contract: 100 x $75 = $7,500 Share conversion: (100 / 2) * 3 = 150 Price conversion: $75 x 2 ÷ 3 = $50 New option contract: 150 x $50 = $7,500 The number of shares and the strike price are adjusted to maintain the notional value of the contract post-split, keeping the notional value the same.

1.7 Risk of Buying Options

What’s the trade-off?

(1) Time — Options have a finite expiration date. They will either expire worthless or be turned into long or short shares of the underlying security.

(2) Leverage — Leverage goes both ways; it can hurt as much as it can help.

2. Anatomy of an Options Symbol

2.1 Example: Anatomy of an Options Symbol

Plain English Symbol: SPY Jan 21, 2022 Call 208

SPY	22	01	21	C	208
The symbol of the underlying	Year of the expiration	Month of the expiration	Day of the expiration	C for a Call, or P for a Put	The Strike Price

Holder (buyer) of this call has the right to BUY 100 shares of SPY at $208 per share at
any time until January 21, 2022.

2.2 Premium Components

Premium = Intrinsic Value + Extrinsic Value

An option contract that has intrinsic value is “in the money”

An option contract that has no intrinsic value is “out of the money”

3. Exercise and Assignment

3.1 What is Exercise?

Exercising a call is when the option holder opts to buy the underlying security at the strike price.

Exercising a put is when the option holder opts to sell the underlying security at the strike price.

If the option has intrinsic value of at least $0.01 at expiration, it will be automatically exercised.

If the option has no intrinsic value at exercise, it will expire worthless.

Remember: Long options are exercised, while short options are assigned.

Note: To exercise, or give contrary advise, you need to call in Fidelity.

3.2 What is Assignment?

Assignment of a call is the option writer fulfilling their obligation to sell the shares at the strike price.

Assignment of a put is the option writer fulfilling their obligation to buy the shares at the strike price.

An option seller does not choose if/when assignment will occur. The option buyer controls the action; assignment occurs when they choose to exercise their option.

Remember: A short (sold) option can be assigned at any time! Even if it has no intrinsic value.

3.3 Examples

Remember: American Style can be exercised at any time.

American Style: Example 1 (Long call)

An option holder who exercised a long XYZ call at 146 would purchase 100 shares of XYZ at $146 per share, or 100 x $146 = $14,600.

If 10 of those contracts were exercised, the cost for 1,000 shares would be 10 x 100 x $146 = $146,000.

If the option has intrinsic value of at least $0.01 at expiration, it will be automatically exercised.

American Style: Example 2 (Short call)

Using the same example, what would Assignment look like?

The seller, assigned on one call, would be required to deliver 100 shares of XYZ, and would receive $146 per share, or 100 x $146 = $14,600.

American Style: Example 3

But what if the seller didn’t already own the shares?

The seller would have to buy them at whatever price they were trading post-assignment, which could be higher than $146 per share.

What if XYZ was now trading at $155? It would now be 100 x $155= $15,500

American Style: Example 4 (Long put)

This time, substitute an XYZ 146 put for the call. Now what would Exercise of the put look like?

A holder who exercised a long XYZ put would sell 100 shares of XYZ for $146 per share, and would receive proceeds of 100 x $146 = $14,600.

American Style: Example 5 (Short put)

Using the same example, what would Assignment look like?

A writer assigned on the one put would be required to buy 100 shares of XYZ at $146 per share, or 100 x $146 = $14,600.

Once again, remember leverage: A writer assigned 10 puts would be required to buy 1,000 shares of XYZ stock at $146, or 10 x 100 x $146 = $146,000.

Remember: European can only be exercised at expiration. They’re based on an index (which cannot be delivered) and they are settled in cash.

European Style: Example

You are Long (Own) 1 SPX call with a strike of 2440.

If your one SPX call were exercised because SPX closed at 2441 on expiration, you would receive $100 CASH in your account.

Your option has $1 of intrinsic value times the multiplier for SPX which is $1 x 100 = $100.

*The multiplier for index options is “usually $100.”