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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. 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.






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






3. An option that has no intrinsic value.






4. 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.






5. The cycle of expiration dates used in short-term options trading. there are three cycles: (January - April - July - October; February - May - August - November; or March - June - September - December) Because options are traded in contracts for three






6. Designated primary market maker.






7. 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.






8. 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.






9. 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)






10. A market drop in the price of a security






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






12. The cycle of expiration dates used in short-term options trading. there are three cycles: (January - April - July - October; February - May - August - November; or March - June - September - December) Because options are traded in contracts for three






13. 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.






14. 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.






15. 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.






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






17. 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.






18. 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






19. 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






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






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






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






23. A short option position that is not fully collateralized if notification of assignment is received. A short call position is uncovered if the writer does not have a long stock or long call position. A short put is naked if the writer is not short sto






24. Opening sale of a security.






25. 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.






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






27. A compilation of the prices of several common entities into a single number; ex (S&P 100 Index).






28. 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.






29. 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






30. A debit spread in which a decline in the price of the underlying security will theoretically increase the value of the spread. (writing 1 XYZ Jan 50 put and buying 1 XYZ Jan 55 put)






31. 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






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






33. 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.






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






35. The date an option contract becomes void.






36. The largest and oldest listed options exchange.






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






38. A long put butterfly is established by buying one put at the lowest strike price - writing two puts at the middle strike price - and buying one put at the highest strike price.






39. An option that has no intrinsic value.






40. 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.






41. A strategy consisting of at least two components transacted simultaneously. The price relationship between each part - or 'leg -' could change based on a move in underlying price and or volatility. A spread is entered into with the expectation of eit






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






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






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






45. At the money






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






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






48. 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.






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






50. An option strategy with limited risk and limited profit potential that involves both a long(or short) straddle - and a short (or long) strangle. (short strangle: buying 1 ABC May 90 call and 1 ABC May 90 put - and writing 1 ABC May 95 call and writin







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