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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. An option on shares of an individual common stock.






2. 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.






3. An option strategy that involves an out-of-the-money call and an out-of-the-money put. This is normally used as a long stock protective strategy when the call is sold and the put is purchased. The opposite of this strategy - called a 'fence -' could






4. 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.






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






6. 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.






7. The risk to an investor that the stock price will exactly equal the strike price of a written option at expiration. (risk to be pinned with 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. The use of money to create more money through an appreciating or income-producing asset.






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






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






12. The stock price(s) at which an option strategy results in neither a profit nor a loss.






13. 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)






14. 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.






15. Two or more trading vehicles packaged to emulate another trading vehicle or spread. Because the package involves different components - price is also different - but risk is the same.






16. An option that has no intrinsic value.






17. 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






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






19. The sensitivity (rate of change) of an option's theoretical value (assessed value) for a one dollar change in price of the underlying instrument. Expressed as a percentage - it represents an equivalent amount of underlying at a given moment in time.






20. 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.






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






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






23. The sensitivity (rate of change) of an option's theoretical value (assessed value) for a one dollar change in price of the underlying instrument. Expressed as a percentage - it represents an equivalent amount of underlying at a given moment in time.






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






25. 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






26. A short option position that is not fully collateralized if notification of assignment is received. A short call position is uncovered if the writer does not have a long stock or long call position. A short put is naked if the writer is not short sto






27. 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.






28. The sensitivity of theoretical option prices with regard to small changes in time. Theta measures the rate of decay in the time value of options.






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






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






31. 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






32. 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.






33. 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)






34. An option that has intrinsic value






35. 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






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






37. 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)






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






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






40. 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






41. Fill-or-kill order






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






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






44. Calculations performed on updated prices.






45. Calculations performed on updated prices.






46. An option strategy that involves an out-of-the-money call and an out-of-the-money put. This is normally used as a long stock protective strategy when the call is sold and the put is purchased. The opposite of this strategy - called a 'fence -' could






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






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






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






50. A graphical representation of the estimated theoretical value of an option at one point in time - at various prices of the underlying stock.