12.S: Summary

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Congratulations ‒ You Have Finished Chapter 12 ‒ Options Contracts

You have reached the end of chapter 12, Options Contracts. In this chapter, you have:

Been introduced to the concepts and basics of options contracts
Explored the rationale behind the use the options contracts
Examined call and put options contracts
Discussed the differences between the options contracts buyer and the options contracts seller (aka writer, maker)
Explored the various characteristics of options contracts such as strike price, expiration date, exercise style, break-even price, and time value
Examined various options contracts strategies including straddles and spreads
Explored Employee Stock Options (ESOs), the valuation of options contracts, other types of options contracts, and warrants

You should now be able to:

Describe the rationale and use of options contracts
Explain the differences between call options and put options
Identify the various characteristics of options contracts
Describe the differences between the options contract buyer and the options contract seller (aka writer, maker)
Explain various option contracts strategies
Determine whether an option contract is “in-the-money,” “at-the-money,” or “out-of-the-money”
Calculate the breakeven price for call and put options
Calculate the profit or loss from various scenarios of purchasing and exercising options contracts
Describe Employee Stock Options (ESOs) and warrants

And You Thought Options Were Risky?!

Well, just wait until we get to our next chapter on futures contracts. Unlike options contracts, futures contracts are financial instruments that actually have a valid reason for existence and are very important to our global economy. However, for the vast majority of us retail investors, they are extremely risky and dangerous and can turn a prudent, long-term investment portfolio into a pool of tears overnight. Remember, we are teaching you about these derivatives so that you will be protected against their siren calls of “get rich quick.” Once again, Dear Readers, instruction about syphilis is not an instruction to get syphilis.