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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 option whose underlying asset is an index.






2. A contract that gives the owner the right - if exercised - to buy or sell a security at a specific price within a specific time limit.






3. The simultaneous purchase and sale of options of the same class (call or put - having same underlying) at the same strike prices - but with different expiration dates - selling the short-term option and buying the long-term option.






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






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






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






7. 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.






8. 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






9. 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)






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. 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.






12. 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






13. The date an option contract becomes void.






14. 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)






15. 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.






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






17. 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.






18. 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






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






20. The sensitivity of theoretical option prices with regard to small changes in interest rates. Increases in interest rates lead to higher call values and lower put values. Lower interest rates do the opposite.






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






22. 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.






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






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






25. Fill-or-kill order






26. At the money






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






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






29. Same as ask price






30. 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






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






32. Commodity trading advisor.






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






34. 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.






35. 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.






36. 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.






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






38. A contract that gives the owner the right - if exercised - to buy or sell a security at a specific price within a specific time limit.






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






40. 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)






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






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






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






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






45. A prolonged period of falling prices. A bear market in stocks is usually brought on by the anticipation of declining economic activity.






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






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






48. An option strategy in which call options are sold against equivalent amounts of long stock. ( writing 2XYZ Jan 50 calls while owning 200 shares of XYZ stock)






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






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