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Options Trading

Instructions:
  • Answer 50 questions in 15 minutes.
  • If you are not ready to take this test, you can study here.
  • 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. A delta-neutral spread composed of more long options than short options on the same underlying instrument. This position generally profits from a large movement in either direction in the underlying instrument.






2. Same as ask price






3. In a customer transaction - edge refers to the markup or markdown price that a market maker generates in the deal. It can be thought of as a tax charged by the market maker for services rendered.






4. 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.






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






6. A long stock position and a short call position.






7. Term used to describe the ownership of a security - contract - or commodity that grants the owner the right to transfer ownership by sale or gift.






8. The total number of outstanding option contracts in a given series






9. The largest and oldest listed options exchange.






10. The degree to which the price of an underlying tends to fluctuate over time. This variable - which the market implies to the underlying - may result from pricing an option through a model.






11. 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






12. 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






13. At the money






14. The time of day by which all exercise notices must be received on the expiration date.






15. An option whose underlying asset is an index.






16. The date an option contract becomes void.






17. The combination of a vertical and a calendar spread - wherein the investor buys and sells options of the same class at different expiration dates and different strike prices.






18. The risk that a change in the interest rates will negatively affect the value of an investor's holdings; generally associated with bonds - but applying to all investments






19. A term referring to all options of the same type- either calls or puts- having the same underlying instrument.






20. A short stock position and a long call position.






21. The stock price(s) at which an option strategy results in neither a profit nor a loss.






22. An order that is designated to be executed on or before the expiration date.






23. 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.






24. Interest rate at which brokerage firms borrow from banks to finance their clients' security positions. The call loan rate is sometimes used because the loans can be called on a 24-hour notice.






25. A long stock position and a long put position.






26. 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






27. Third Friday of expiration month






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






29. 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.






30. 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.






31. An option on shares of an individual common stock.






32. A type of order that requires that the order be executed completely or not at all.






33. Good Til Cancel






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






35. The ratio of trading volume in put options to the trading volume in call options. The ratio provides a quantitative measure of the bullishness or bearishness of investors.






36. Procedure used by the options clearing corporation to exercise in-the-money options at expiration. (75 cents or more)






37. Amount by which an option is ITM.






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






39. The time of day by which all exercise notices must be received on the expiration date.






40. An investment strategy used by professional option traders in which a short put and long call with the same strike price and expiration are combined with short stock to lock in a price. (selling short 100 shares of XYZ stock - buying 1 XYZ May 60 cal






41. The highest price a dealer is willing to pay for a security at a particular time.






42. A long stock position and a short call position.






43. Same as ask price






44. A measure of actual stock price changes over a specific period of time.






45. A position that will perform best if there is little or no net change in the price of the underlying stock.






46. The price of an option less its intrinsic value. The entire premium of an out-of-the-money option consists of extrinsic value. This is often referred to as the time value portion of option premiums.






47. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.






48. 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)






49. The month during which the expiration date occurs






50. The largest and oldest listed options exchange.