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Options Trading

Instructions:
  • Answer 50 questions in 15 minutes.
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  • Match each statement with the correct term.
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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. Charge levied for the privilege ofborrowing money






2. 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.






3. 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






4. Third Friday of expiration month






5. An adjective describing the belief that a stock or the market in general will neither rise nor decline significantly.






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. A strategy involving four options and four strike prices - and that has both limited risk and limited profit potential. A long call condor spread is establish by buying one call the lowest strike - writing one call at the second strike - writing anot






8. 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






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






10. 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.






11. 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.






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






13. Fill-or-kill order






14. 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)






15. The risk to an investor that the stock price will exactly equal the strike price of a written option at expiration. (risk to be pinned with stock)






16. Charge levied for the privilege ofborrowing money






17. Good Til Cancel






18. A four-sided option spread that involves a long call and a short put at one strike price as well as a short call and a long put at another strike price. (buying 1 LMN Jan 50 call - and writing 1 LMN Jan 55 call; simultaneously buying 1 LMN Jan 55 put






19. An agent who facilitates trades between a buyer and a seller and receives a commission for services.






20. At the money






21. The seller of an option contract Who is obligated to meet the terms of delivery if the option is exercised.






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






23. The simultaneous purchase and sale of options of the same class at different strike prices - but with the same expiration date. (ABC April 150/155 call spread. you purchase the ABC Apr 150 call and sell the ABC Apr 155 call). similar to the outright






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






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






26. 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.






27. Long-term equity anticipation securities are calls and puts with expiration's as long as two to three years.






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






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






30. Opening sale of a security.






31. 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.






32. Opening sale of a security.






33. 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






34. 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






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






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






37. 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






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






39. Investment strategy that has a similar risk/reward profile as another investment strategy. (a long May 60-65 call vertical spread is equivalent to a short May 60-65 put vertical spread).






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






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






42. 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]






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






44. An option that has intrinsic value






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






46. 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)






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






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. 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)






50. 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







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