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






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






3. The simultaneous purchase and sale of options of the same class (call or put - having same underlying) at the same strike prices - but with different expiration dates - selling the short-term option and buying the long-term option.






4. The instrument (stock - future - or cash index) to be delivered when an option is exercised.






5. 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)






6. The date an option contract becomes void.






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






8. 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]






9. Options that may be exercised on or before the expiration date.






10. An investment strategy that attempts to lower risk by buying securities that have offsetting risk characteristics. A perfect hedge eliminates risk entirely. Hedging strategies lower the return because there is a cost involved in reducing risk.






11. A contract between a buyer and seller whereby the buyer acquires the right - but not the obligation - to buy a specified underlying instrument at a fixed price on or before a specified date.






12. The price that an owner of an option can purchase (call) or sell (put) the underlying stock.






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






14. These options can be exercised on any business dy prior to expiration and the settlement value will be based on the index close that day - settled in the cash equivalent of the amount in-the-money.






15. Third Friday of expiration month






16. Commodity trading advisor.






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






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






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






20. An open short option position that is offset by a corresponding stock position on a share-for-share basis. This ensures that if the owner of the option exercises - the writer of the option will not have a problem fulfilling the delivery requirements.






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






22. Amount by which an option is ITM.






23. An option that has no intrinsic value.






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






25. Same as ask price






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






27. 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)






28. 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






29. Process by which the holder of an option notifies the seller of intention to take delivery of the underlying in the case of a call - or make delivery in the case of a put - at the specified exercise price.






30. A strategy involving two or more options of the same type that will profit from a decline in the underlying stock. Consists of buying an option with a higher strike and selling an option with a lower strike. The maximum risk will be realized if the u






31. An option position that involves the purchase/sale of a call and the sale (purchase of a put on the same underlying strike with the same expiration. Can also be referred to as any set of multiple purchases and sales of options.






32. An option strategy that involves an out-of-the-money call and an out-of-the-money put. This is normally used as a long stock protective strategy when the call is sold and the put is purchased. The opposite of this strategy - called a 'fence -' could






33. A graphical representation of the estimated theoretical value of an option at one point in time - at various prices of the underlying stock.






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






35. An individual with the opinion that a security - or the market in general will decline in price; someone having a negative or pessimistic outlook.






36. An option that has no intrinsic value.






37. The interest expense on money borrowed to finance a margined securities position.






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. An investment strategy in which a long put and a short call with the same strike price and expiration are combined with long stock to lock in a nearly risk-less profit. (by purchasing 100 shares of XYZ stock at 50 - writing 1 XYZ Jan 50 call - and bu






40. The largest and oldest listed options exchange.






41. Another name for calendar spread.






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






43. 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






44. Good Til Cancel






45. At the money






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. An option strategy that involves an out-of-the-money call and an out-of-the-money put. This is normally used as a long stock protective strategy when the call is sold and the put is purchased. The opposite of this strategy - called a 'fence -' could






48. An option whose exercise price is equal to the current market price of the underlying security. An ATM option may or may not have intrinsic value.






49. A a feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.






50. 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.