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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. 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.






2. 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.






3. 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






4. 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






5. Same as ask price






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






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






8. A market drop in the price of a security






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






10. 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






11. 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






12. Commodity trading advisor.






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






14. An option whose underlying asset is an index.






15. 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






16. 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.






17. An option on shares of an individual common stock.






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






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






20. The largest and oldest listed options exchange.






21. 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






22. 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.






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






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






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






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






27. 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.






28. At the money






29. An option that has no intrinsic value.






30. The date an option contract becomes void.






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






32. 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






33. 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






34. 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.






35. A position resulting from the sale of a contract or instrument that you do not own.






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






37. A measure of the volatility of the underlying security - derived by applying current prices rather than historical prices.






38. 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).






39. 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.






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






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






42. An option that has intrinsic value






43. 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






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






45. 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.






46. 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.






47. 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.






48. Another name for calendar spread.






49. 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.






50. Third Friday of expiration month