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






2. A prolonged period of falling prices. A bear market in stocks is usually brought on by the anticipation of declining economic activity.






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






4. An option strategy in which call options are sold against equivalent amounts of long stock. ( writing 2XYZ Jan 50 calls while owning 200 shares of XYZ stock)






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






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






7. An option that has no intrinsic value.






8. 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






9. The simultaneous purchase and sale of options of the same class at different strike prices - but with the same expiration date. (ABC April 150/155 call spread. you purchase the ABC Apr 150 call and sell the ABC Apr 155 call). similar to the outright






10. 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)






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






12. 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.






13. 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.






14. Calculations performed on updated prices.






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






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






17. 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.






18. 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






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






20. 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






21. An option strategy in which call options are sold against equivalent amounts of long stock. ( writing 2XYZ Jan 50 calls while owning 200 shares of XYZ stock)






22. Amount by which an option is ITM.






23. 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.






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






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






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






27. Same as ask price






28. An option whose underlying asset is an index.






29. 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.






30. An order that is designated to be executed on or before the expiration date. (all or none)






31. 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.






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






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






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






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 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






37. 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






38. 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.






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






40. 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






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






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






43. 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.






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






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






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






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






48. 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






49. 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.






50. 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.