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






2. 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.






3. 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






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






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






6. A trading technique that involves the simultaneous purchase and sale of identical assets traded on two different exchanges with the intention of profiting by a difference in price between exchanges.






7. Third Friday of expiration month






8. A market drop in the price of a security






9. 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)






10. 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






11. An option whose underlying asset is an index.






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






13. 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






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






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






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






17. 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






18. 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






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






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






21. 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.






22. The month during which the expiration date occurs






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






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






25. In a customer transaction - edge refers to the markup or markdown price that a market maker generates in the deal. It can be thought of as a tax charged by the market maker for services rendered.






26. A long stock position and a long put position.






27. 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.






28. 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.






29. 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.






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






31. 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.






32. An option that has no intrinsic value.






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






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






35. 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)






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






37. A term referring to all options of the same type- either calls or puts- having the same underlying instrument.






38. A trading technique that involves the simultaneous purchase and sale of identical assets traded on two different exchanges with the intention of profiting by a difference in price between exchanges.






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






40. A credit spread in which a rise in price of the underlying security will theoretically increase the profit value of the spread. (writing 1 XYZ Jan 55 put and buying 1 XYZ Jan 50 put)






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






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






43. 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.






44. An option strategy that generally involves the purchase of a farther-term option (call or put) and the selling (writing) of an equal number of nearer-term options of the same type and strike price. (buying 1ITI May 60 cal[ far term portion of spread]






45. 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






46. The month during which the expiration date occurs






47. 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.






48. 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.






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






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







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