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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. 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.






2. The ratio of trading volume in put options to the trading volume in call options. The ratio provides a quantitative measure of the bullishness or bearishness of investors.






3. 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






4. The simultaneous purchase and sale of options of the same class (call or put - having same underlying) at the same strike prices - but with different expiration dates - selling the short-term option and buying the long-term option.






5. 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.






6. At the money






7. 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






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






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






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






11. 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.






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






13. 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






14. An option that has intrinsic value






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






16. 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






17. 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)






18. 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.






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






20. 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)






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






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






23. Amount by which an option is ITM.






24. 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.






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






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






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






28. 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.






29. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.






30. 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.






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






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






33. The instrument (stock - future - or cash index) to be delivered when an option is exercised.






34. 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






35. 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.






36. Another name for calendar spread.






37. The ratio of trading volume in put options to the trading volume in call options. The ratio provides a quantitative measure of the bullishness or bearishness of investors.






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






39. 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.






40. Fill-or-kill order






41. The total price of an option: intrinsic value plus extrinsic value






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






43. 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.






44. 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






45. Good Til Cancel






46. 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)






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






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






49. Same as ask price






50. Charge levied for the privilege ofborrowing money







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