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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 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)






2. A position established with the specific intent of protecting an existing position. (an owner of common stock may buy a put option to hedge against a possible stock price decline).






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






4. 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






5. 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






6. The risk that a change in the interest rates will negatively affect the value of an investor's holdings; generally associated with bonds - but applying to all investments






7. 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.






8. The purchase or sale of an equal number of puts or calls with the same underlying - stike price - and expiration.






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






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






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






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






13. The month during which the expiration date occurs






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






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






16. 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.






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






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






19. 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






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






21. 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)






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






23. Commodity trading advisor.






24. 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.






25. 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.






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






27. At the money






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






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






30. An open short option position that is offset by a corresponding stock position on a share-for-share basis. This ensures that if the owner of the option exercises - the writer of the option will not have a problem fulfilling the delivery requirements.






31. 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.






32. Amount by which an option is ITM.






33. A market drop in the price of a security






34. Another name for calendar spread.






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






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






37. 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






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






39. 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.






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






41. Designated primary market maker.






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






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






44. The date an option contract becomes void.






45. Amount by which an option is ITM.






46. 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)






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






48. An option that has no intrinsic value.






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






50. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.