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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. 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






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






4. 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






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






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






7. This formula can be used to calculate a theoretical value for an option using current stock prices - expected dividends - the option's strike price - expected interest rates - time to expiration - and expected stock volatility.






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






9. Third Friday of expiration month






10. Charge levied for the privilege ofborrowing money






11. 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.






12. 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)






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






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






15. 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.






16. 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.






17. 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.






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






19. A means of increasing return or worth without increasing investment.






20. A long put butterfly is established by buying one put at the lowest strike price - writing two puts at the middle strike price - and buying one put at the highest strike price.






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






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






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






24. 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






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






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






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






28. The largest and oldest listed options exchange.






29. 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






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






31. 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.






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






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






34. The total price of an option: intrinsic value plus extrinsic value






35. 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.






36. Good Til Cancel






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






38. The sensitivity of theoretical option prices with regard to small changes in interest rates. Increases in interest rates lead to higher call values and lower put values. Lower interest rates do the opposite.






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






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






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






43. 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)






44. A long put butterfly is established by buying one put at the lowest strike price - writing two puts at the middle strike price - and buying one put at the highest strike price.






45. 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.






46. 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)






47. 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.






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






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






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