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Options Trading

Instructions:
  • Answer 50 questions in 15 minutes.
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  • Match each statement with the correct term.
  • Don't refresh. All questions and answers are randomly picked and ordered every time you load a test.

This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. The stock price(s) at which an option strategy results in neither a profit nor a loss.






2. A spread in which the difference in the long and short options premiums results in a net debit.






3. A measure of the volatility of the underlying security - derived by applying current prices rather than historical prices.






4. Received notification of an assignment by rhw options clearing corporation.






5. The month during which the expiration date occurs






6. An order to buy or sell at the last price on the close.






7. An order that is designated to be executed on or before the expiration date. (all or none)






8. The difference in the premium prices of two options - where the credit premium of the one sold exceeds the debit premium of the one purchased. A bull spread with puts and a bear spread with calls are examples of credit spreads.






9. An option strategy that generally involves the purchase of a farther-term option (call or put) and the selling (writing) of an equal number of nearer-term options of the same type and strike price. (buying 1ITI May 60 cal[ far term portion of spread]






10. A credit spread in which a rise in price of the underlying security will theoretically increase the profit value of the spread. (writing 1 XYZ Jan 55 put and buying 1 XYZ Jan 50 put)






11. Options contracts on the same class having the same strike price and expiration month. (all XYZ May 60 calls constitue a series.






12. Good Til Cancel






13. A short option position that is not fully collateralized if notification of assignment is received. A short call position is uncovered if the writer does not have a long stock or long call position. A short put is naked if the writer is not short sto






14. A short call position and a long put position.






15. An investment strategy in which stock is purchased and call options are written on a greater than one-for-one basis.More calls written than the equivalent number of shares purchased.






16. An option that has no intrinsic value.






17. At the money






18. An option that can be exercised only at expiration. Usually expire the third Friday of every month






19. A contract that gives the owner the right - if exercised - to buy or sell a security at a specific price within a specific time limit.






20. Options contracts on the same class having the same strike price and expiration month. (all XYZ May 60 calls constitue a series.






21. A strategy involving two or more options of the same type (or options combined with an underlying stock position) that will profit from a rise in the price of the underlying stock. Consists or selling an option with a higher strike - and buying an op






22. Good Til Cancel






23. The cycle of expiration dates used in short-term options trading. there are three cycles: (January - April - July - October; February - May - August - November; or March - June - September - December) Because options are traded in contracts for three






24. The use of money to create more money through an appreciating or income-producing asset.






25. Evaluating an options value through the use of a pricing model allows one to determine the theoretical value of the option(price you would expect to pay in order to break even)






26. The number of underlying shares covered by one option contract. (100 shares for one equity option)






27. A trading technique that involves the simultaneous purchase and sale of identical assets traded on two different exchanges with the intention of profiting by a difference in price between exchanges.






28. A strategy consisting of at least two components transacted simultaneously. The price relationship between each part - or 'leg -' could change based on a move in underlying price and or volatility. A spread is entered into with the expectation of eit






29. A strategy involving two or more options of the same type (or options combined with an underlying stock position) that will profit from a rise in the price of the underlying stock. Consists or selling an option with a higher strike - and buying an op






30. Fill-or-kill order






31. The sensitivity (rate of change) of an option's theoretical value (assessed value) for a one dollar change in price of the underlying instrument. Expressed as a percentage - it represents an equivalent amount of underlying at a given moment in time.






32. Two or more trading vehicles packaged to emulate another trading vehicle or spread. Because the package involves different components - price is also different - but risk is the same.






33. A prolonged period of falling prices. A bear market in stocks is usually brought on by the anticipation of declining economic activity.






34. A spread in which the difference in the long and short options premiums results in a net debit.






35. At the money






36. The lowest price at which a dealer or trader is willing to sell a tradable instrument at a particular time.






37. A debit spread in which a rise in the price of the underlying security will theoretically increase the value of the spread. (buying 1 XYZ Jan 50 call and writing 1 XYZ Jan 55 call)






38. A term describing one side of a spread position. A trader who legs into a spread establishes one side first - hoping for a favorable price movement so the other side can be executed at a better price.






39. A long call butterfly is created by buying one call at the lowest strike price - selling two calls at the middle strike price - and buying one call at the highest strike price. (buying 1 ABC Jan 40 call - writing 2 ABC Jan 45 calls - and buying 1 ABC






40. An option strategy in which call options are sold against equivalent amounts of long stock. ( writing 2XYZ Jan 50 calls while owning 200 shares of XYZ stock)






41. An order to buy or sell a security that will remain in effect until the order is executed or canceled






42. The process by which the seller of an option is notified of the buyer's intention to exercise that option.






43. Another name for calendar spread.






44. An option strategy with limited risk and limited profit potential that involves both a long(or short) straddle - and a short (or long) strangle. (short strangle: buying 1 ABC May 90 call and 1 ABC May 90 put - and writing 1 ABC May 95 call and writin






45. The sensitivity of an option's delta at a given moment in time. It is the change in delta with respect to a 1-point change in the underlying. Examplee (let's say a call option with a 100 strike price has a 50 delta. If the underlying moves from 100 t






46. A list of the options available for the underlying stock symbols in which you are interested.






47. The part of an options total price that exceeds its intrinsic value. Price of an out-of-money option consists entirely of time value.






48. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.






49. A long call position and a short put position.






50. The purchase or sale of an equal number of puts or calls with the same underlying - stike price - and expiration.







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