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






2. A long stock position and a long put position.






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






4. An option that has no intrinsic value.






5. 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.






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






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






8. 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.






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






10. Amount by which an option is ITM.






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






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






13. 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).






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






15. A short stock position and a short put position.






16. 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.






17. 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)






18. 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)






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






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






21. 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.






22. 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.






23. Third Friday of expiration month






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






25. 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






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






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






28. Charge levied for the privilege ofborrowing money






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






30. 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.






31. Calculations performed on updated prices.






32. 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.






33. 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)






34. 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






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






36. 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.






37. 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






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






39. 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.






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






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






42. 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.






43. An order that is designated to be executed on or before the expiration date.






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






46. 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.






47. The interest expense on money borrowed to finance a margined securities position.






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






49. 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)






50. 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)