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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. 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






2. Opening sale of a security.






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






4. The date on which an option and the right to exercise it cease to exist. Listed stock options expire the Saturday following the third Friday of every month.






5. 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






6. A contract to buy or sell a predetermined Quantity of a commodity or financial product for a specific price on a given date.






7. 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)






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






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






10. Amount by which an option is ITM.






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






12. The month during which the expiration date occurs






13. 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)






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






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






16. 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.






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






18. 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.






19. 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).






20. 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.






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






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






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






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. The estimated value of an option derived from a mathematical model.






26. The estimated value of an option derived from a mathematical model.






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






28. 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.






29. Opening sale of a security.






30. 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






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






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






33. An option whose underlying asset is an index.






34. The month during which the expiration date occurs






35. Commodity trading advisor.






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






37. Designated primary market maker.






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






39. 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]






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






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






42. 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






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






44. Fill-or-kill order






45. Term used to describe how the theoretical value of an option 'erodes' or reduces with the passage of time. Time decay is specifically quantified by Theta.






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






47. 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.






48. Same as ask price






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






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