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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 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)






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






3. 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]






4. The largest and oldest listed options exchange.






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






6. This formula can be used to calculate a theoretical value for an option using current stock prices - expected dividends - the option's strike price - expected interest rates - time to expiration - and expected stock volatility.






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






8. 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.






9. 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.






10. 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.






11. An option that has intrinsic value






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






13. 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.






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






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






16. Third Friday of expiration month






17. 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






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






19. 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.






20. 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






21. 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.






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






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






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






25. Commodity trading advisor.






26. 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]






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






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






29. Opening sale of a security.






30. 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)






31. 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.






32. 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.






33. 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.






34. Charge levied for the privilege ofborrowing money






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






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






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






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






39. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.






40. 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.






41. 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






42. 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.






43. 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.






44. Another name for calendar spread.






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






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






47. 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






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






49. 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).






50. This formula can be used to calculate a theoretical value for an option using current stock prices - expected dividends - the option's strike price - expected interest rates - time to expiration - and expected stock volatility.