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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. At the money






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






3. 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.






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






5. The date an option contract becomes void.






6. 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.






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






8. Amount by which an option is ITM.






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






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






11. Another name for calendar spread.






12. A long call butterfly is created by buying one call at the lowest strike price - selling two calls at the middle strike price - and buying one call at the highest strike price. (buying 1 ABC Jan 40 call - writing 2 ABC Jan 45 calls - and buying 1 ABC






13. 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






14. Fill-or-kill order






15. 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.






16. The largest and oldest listed options exchange.






17. 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.






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






19. 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






20. A trading technique that involves the simultaneous purchase and sale of identical assets traded on two different exchanges with the intention of profiting by a difference in price between exchanges.






21. 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






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






23. The sensitivity of an options theoretical value to a change in implied volatility.






24. 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.






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






27. 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






28. 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)






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. The lowest price at which a dealer or trader is willing to sell a tradable instrument at a particular time.






31. Constructin a portfolio to match the performance of a broad-based index - such as the S&P 500. Individuals can do this by purchasing shares in an index mutual fund.






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






34. 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)






35. The largest and oldest listed options exchange.






36. 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.






37. 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)






38. Opening sale of a security.






39. 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)






40. 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






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






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






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






44. 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.






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






46. A market drop in the price of a security






47. 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






48. Third Friday of expiration month






49. Two or more trading vehicles packaged to emulate another trading vehicle or spread. Because the package involves different components - price is also different - but risk is the same.






50. 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)







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