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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. 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.






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






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






4. Opening sale of a security.






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






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






7. A debit spread in which a decline in the price of the underlying security will theoretically increase the value of the spread. (writing 1 XYZ Jan 50 put and buying 1 XYZ Jan 55 put)






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






9. 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






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






11. Amount by which an option is ITM.






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






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






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






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






16. 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.






17. 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






18. Third Friday of expiration month






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. The degree to which the price of an underlying tends to fluctuate over time. This variable - which the market implies to the underlying - may result from pricing an option through a model.






21. 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






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






23. 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)






24. 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.






25. Evaluating an options value through the use of a pricing model allows one to determine the theoretical value of the option(price you would expect to pay in order to break even)






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






27. A strategy consisting of at least two components transacted simultaneously. The price relationship between each part - or 'leg -' could change based on a move in underlying price and or volatility. A spread is entered into with the expectation of eit






28. 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.






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






30. 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.






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






32. A measure of the volatility of the underlying security - derived by applying current prices rather than historical prices.






33. An option that has no intrinsic value.






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






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






36. 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.






37. 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






38. 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.






39. 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.






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






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






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






43. 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.






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






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






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






47. Calculations performed on updated prices.






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






49. 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]






50. An option whose underlying asset is an index.