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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. 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.






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






3. 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.






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






5. The month during which the expiration date occurs






6. The total price of an option: intrinsic value plus extrinsic value






7. 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.






8. 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).






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






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






11. Fill-or-kill order






12. A market drop in the price of a security






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






15. 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.






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






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






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






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






20. 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)






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






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






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






24. Amount by which an option is ITM.






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






26. 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)






27. Third Friday of expiration month






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






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






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






31. Calculations performed on updated prices.






32. The total price of an option: intrinsic value plus extrinsic value






33. 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.






34. 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






35. 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.






36. 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.






37. Another name for calendar spread.






38. 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.






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






40. 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






41. 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)






42. 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






43. A trading technique that involves the simultaneous purchase and sale of identical assets traded on two different exchanges with the intention of profiting by a difference in price between exchanges.






44. Another name for calendar spread.






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






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






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






48. 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






49. 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)






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