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Options Trading

Instructions:
  • Answer 50 questions in 15 minutes.
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  • Match each statement with the correct term.
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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 position resulting from the sale of a contract or instrument that you do not own.






2. 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.






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






4. 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






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






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






8. 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.






9. A means of increasing return or worth without increasing investment.






10. 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)






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






12. An option whose underlying asset is an index.






13. Interest rate at which brokerage firms borrow from banks to finance their clients' security positions. The call loan rate is sometimes used because the loans can be called on a 24-hour notice.






14. The month during which the expiration date occurs






15. Fill-or-kill order






16. 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.






17. 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






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






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






20. The instrument (stock - future - or cash index) to be delivered when an option is exercised.






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






22. 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






23. 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.






24. The instrument (stock - future - or cash index) to be delivered when an option is exercised.






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






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






27. Same as ask price






28. 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.






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






30. The time of day by which all exercise notices must be received on the expiration date.






31. 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






32. 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.






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






34. Amount by which an option is ITM.






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






36. 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)






37. 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.






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






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






40. 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.






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






42. 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.






43. A list of the options available for the underlying stock symbols in which you are interested.






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






45. 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






46. 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






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






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






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






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







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