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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 short call position and a long put position.






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






3. 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.






4. The sensitivity of theoretical option prices with regard to small changes in time. Theta measures the rate of decay in the time value of options.






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






6. 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.






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






8. 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)






9. 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.






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






11. 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.






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






13. 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






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






15. At the money






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






17. The month during which the expiration date occurs






18. 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






19. The seller of an option contract Who is obligated to meet the terms of delivery if the option is exercised.






20. 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.






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






22. 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.






23. Commodity trading advisor.






24. These options can be exercised on any business dy prior to expiration and the settlement value will be based on the index close that day - settled in the cash equivalent of the amount in-the-money.






25. 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






26. 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.






27. 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).






28. Charge levied for the privilege ofborrowing money






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






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






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






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






33. The seller of an option contract Who is obligated to meet the terms of delivery if the option is exercised.






34. An option strategy that is neither bullish nor bearish.






35. 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.






36. The lowest price at which a dealer or trader is willing to sell a tradable instrument at a particular time.






37. 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.






38. 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






39. Fill-or-kill order






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






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






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






43. 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)






44. An adjective describing the belief that a stock or the market in general will neither rise nor decline significantly.






45. 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.






46. Charge levied for the privilege ofborrowing money






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






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






49. Good Til Cancel






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