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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. 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






2. Received notification of an assignment by rhw options clearing corporation.






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






4. The date an option contract becomes void.






5. The risk to an investor that the stock price will exactly equal the strike price of a written option at expiration. (risk to be pinned with stock)






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






7. An option that has intrinsic value






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






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






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






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






12. An investment strategy that attempts to lower risk by buying securities that have offsetting risk characteristics. A perfect hedge eliminates risk entirely. Hedging strategies lower the return because there is a cost involved in reducing risk.






13. The process by which the seller of an option is notified of the buyer's intention to exercise that option.






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






15. Another name for calendar spread.






16. 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.






17. The combination of a vertical and a calendar spread - wherein the investor buys and sells options of the same class at different expiration dates and different strike prices.






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






19. 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.






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






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






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






24. 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.






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






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






27. Commodity trading advisor.






28. The month during which the expiration date occurs






29. 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.






30. 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.






31. 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






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






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






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






35. 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






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






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






38. 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.






39. 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






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






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






42. The date on which an option and the right to exercise it cease to exist. Listed stock options expire the Saturday following the third Friday of every month.






43. 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.






44. 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.






45. 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)






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






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






49. Received notification of an assignment by rhw options clearing corporation.






50. 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)