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






2. 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






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






4. 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.






5. 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.






6. Charge levied for the privilege ofborrowing money






7. 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






8. 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.






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






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






11. 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.






12. Third Friday of expiration month






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






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






15. 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.






16. 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)






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






18. 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)






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






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






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






22. 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.






23. 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)






24. A strategy involving four options and four strike prices - and that has both limited risk and limited profit potential. A long call condor spread is establish by buying one call the lowest strike - writing one call at the second strike - writing anot






25. An option that can be exercised only at expiration. Usually expire the third Friday of every month






26. Opening sale of a security.






27. 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.






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






29. Same as ask price






30. An agent who facilitates trades between a buyer and a seller and receives a commission for services.






31. 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)






32. The interest expense on money borrowed to finance a margined securities position.






33. 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.






34. 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






35. 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






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






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






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. 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






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






41. 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






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






43. 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






44. A market drop in the price of a security






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






46. 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.






47. 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.






48. 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






49. Another name for calendar spread.






50. A strategy involving four options of the same type that span three strike prices. The strategy has both limited risk and limited profit potential.