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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. An option strategy that is neither bullish nor bearish.






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






3. An option that has no intrinsic value.






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






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






6. 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.






7. 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






8. 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.






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






10. A strategy that profits from a stock price decline. It is initiated by borrowing stock from a broker -dealer and selling it in the open market. This strategy is closed (covered) at a later date by buying back the stock and turning it to the lending b






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






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






13. 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.






14. 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






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






16. 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.






17. Commodity trading advisor.






18. An individual with the opinion that a security - or the market in general will decline in price; someone having a negative or pessimistic outlook.






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






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






21. The largest and oldest listed options exchange.






22. 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






23. Same as ask price






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






25. 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.






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






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






28. 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)






29. The difference in the premium prices of two options - where the credit premium of the one sold exceeds the debit premium of the one purchased. A bull spread with puts and a bear spread with calls are examples of credit spreads.






30. 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.






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






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






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






34. A delta-neutral spread composed of more long options than short options on the same underlying instrument. This position generally profits from a large movement in either direction in the underlying instrument.






35. 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)






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






37. A list of the options available for the underlying stock symbols in which you are interested.






38. 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)






39. An option whose underlying asset is an index.






40. 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






41. 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.






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






43. 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






44. 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






45. Interest rate at which brokerage firms borrow from banks to finance their clients' security positions. The call loan rate is sometimes used because the loans can be called on a 24-hour notice.






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






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






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






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






50. An individual with the opinion that a security - or the market in general will decline in price; someone having a negative or pessimistic outlook.







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