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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. Charge levied for the privilege ofborrowing money






2. 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.






3. 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.






4. 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.






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






6. 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.






7. An option that can be exercised only at expiration. Usually expire the third Friday of every month






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






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






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






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






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






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






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






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






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






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






18. 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)






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






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






21. An option that has no intrinsic value.






22. 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.






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






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






25. 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).






26. An investment strategy in which stock is purchased and call options are written on a greater than one-for-one basis.More calls written than the equivalent number of shares purchased.






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






28. Same as ask price






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






30. A market drop in the price of a security






31. 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






32. 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






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






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






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






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






37. The largest and oldest listed options exchange.






38. 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






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






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






41. 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.






42. 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






43. 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.






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






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






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






47. The sensitivity (rate of change) of an option's theoretical value (assessed value) for a one dollar change in price of the underlying instrument. Expressed as a percentage - it represents an equivalent amount of underlying at a given moment in time.






48. 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.






49. 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).






50. 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







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