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






2. 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)






3. A position resulting from the sale of a contract or instrument that you do not own.






4. 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.






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






6. 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.






7. 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)






8. 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






9. Good Til Cancel






10. A strategy that profits from a stock price decline. It is initiated by borrowing stock from a broker -dealer and selling it in the open market. This strategy is closed (covered) at a later date by buying back the stock and turning it to the lending b






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






12. A position established with the specific intent of protecting an existing position. (an owner of common stock may buy a put option to hedge against a possible stock price decline).






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






14. The month during which the expiration date occurs






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






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






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






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






19. An option strategy that is neither bullish nor bearish.






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






21. An option created as the result of a special event such as a stock split - stock dividend - merger or spin-off taking place during the life of an option. ( adjusted option may cover more than the usual one hundred shares)






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






23. Amount by which an option is ITM.






24. 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






25. A compilation of the prices of several common entities into a single number; ex (S&P 100 Index).






26. 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.






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






28. 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.






29. A short stock position and a short put position.






30. 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.






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






32. 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.






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






34. 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.






35. 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






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






37. 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.






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






39. Calculations performed on updated prices.






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






41. A strategy involving four options of the same type that span three strike prices. The strategy has both limited risk and limited profit potential.






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






43. 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.






44. 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






45. A strategy that profits from a stock price decline. It is initiated by borrowing stock from a broker -dealer and selling it in the open market. This strategy is closed (covered) at a later date by buying back the stock and turning it to the lending b






46. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.






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






48. 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.






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






50. 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)







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