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






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






3. 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.






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






5. 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






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






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






8. 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.






9. 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.






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






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






12. 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.






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






14. 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






15. 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.






16. 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.






17. The date an option contract becomes void.






18. An option that has intrinsic value






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






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






21. The price of an option less its intrinsic value. The entire premium of an out-of-the-money option consists of extrinsic value. This is often referred to as the time value portion of option premiums.






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






23. 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






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






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






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






27. Options contracts on the same class having the same strike price and expiration month. (all XYZ May 60 calls constitue a series.






28. Two or more trading vehicles packaged to emulate another trading vehicle or spread. Because the package involves different components - price is also different - but risk is the same.






29. Calculations performed on updated prices.






30. A measure of actual stock price changes over a specific period of time.






31. Calculations performed on updated prices.






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






33. Term used to describe how the theoretical value of an option 'erodes' or reduces with the passage of time. Time decay is specifically quantified by Theta.






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






35. 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.






36. 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.






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






38. 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.






39. 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






40. 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.






41. 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.






42. 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).






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






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






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






46. 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)






47. 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.






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






49. 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






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







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