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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 price that an owner of an option can purchase (call) or sell (put) the underlying stock.






2. Same as ask price






3. 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.






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






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






6. Term used to describe how the theoretical value of an option 'erodes' or reduces with the passage of time. Time decay is specifically quantified by Theta.






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






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






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






10. 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






11. Procedure used by the options clearing corporation to exercise in-the-money options at expiration. (75 cents or more)






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






13. 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






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






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






16. Third Friday of expiration month






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






18. 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.






19. 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.






20. The month during which the expiration date occurs






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






22. Procedure used by the options clearing corporation to exercise in-the-money options at expiration. (75 cents or more)






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






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






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






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






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






28. Calculations performed on updated prices.






29. 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






30. 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.






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






32. 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.






33. 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.






34. 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.






35. An open short option position that is offset by a corresponding stock position on a share-for-share basis. This ensures that if the owner of the option exercises - the writer of the option will not have a problem fulfilling the delivery requirements.






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






37. Good Til Cancel






38. A position established with the specific intent of protecting an existing position. (an owner of common stock may buy a put option to hedge against a possible stock price decline).






39. Options that may be exercised on or before the expiration date.






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






41. A list of the options available for the underlying stock symbols in which you are interested.






42. 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






43. 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






44. 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.






45. 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.






46. The largest and oldest listed options exchange.






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






48. Third Friday of expiration month






49. Charge levied for the privilege ofborrowing money






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