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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 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






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






3. 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






4. A term describing one side of a spread position. A trader who legs into a spread establishes one side first - hoping for a favorable price movement so the other side can be executed at a better price.






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






6. Same as ask price






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






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






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






10. 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






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






12. An option that has intrinsic value






13. 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






14. 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






15. 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






16. An option that has intrinsic value






17. 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.






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






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






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






21. 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.






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






23. 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.






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






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






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






27. 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.






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






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






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






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






32. 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.






33. 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.






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






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






36. 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.






37. Opening sale of a security.






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






39. Designated primary market maker.






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






41. Amount by which an option is ITM.






42. The month during which the expiration date occurs






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






44. 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






45. A market drop in the price of a security






46. 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.






47. 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.






48. 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.






49. The purchase or sale of an equal number of puts or calls with the same underlying - stike price - and expiration.






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