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






2. 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)






3. 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






4. Calculations performed on updated prices.






5. 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.






6. 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






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






8. 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.






9. An option strategy with limited risk and limited profit potential that involves both a long(or short) straddle - and a short (or long) strangle. (short strangle: buying 1 ABC May 90 call and 1 ABC May 90 put - and writing 1 ABC May 95 call and writin






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






11. 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






12. Commodity trading advisor.






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. Third Friday of expiration month






15. Amount by which an option is ITM.






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






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






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






19. 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.






20. 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.






21. 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






22. An investment strategy in which a long put and a short call with the same strike price and expiration are combined with long stock to lock in a nearly risk-less profit. (by purchasing 100 shares of XYZ stock at 50 - writing 1 XYZ Jan 50 call - and bu






23. 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.






24. 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.






25. 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)






26. The month during which the expiration date occurs






27. 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






28. 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)






29. 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






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. Evaluating an options value through the use of a pricing model allows one to determine the theoretical value of the option(price you would expect to pay in order to break even)






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






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






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






35. 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).






36. A means of increasing return or worth without increasing investment.






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






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






39. An option whose underlying asset is an index.






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






41. 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.






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






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






44. 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.






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






46. 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).






47. 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.






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






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






50. 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







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