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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 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






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






3. 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.






4. 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






5. The largest and oldest listed options exchange.






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. 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)






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






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






10. 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.






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






12. 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.






13. Commodity trading advisor.






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






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






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






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






18. The date on which an option and the right to exercise it cease to exist. Listed stock options expire the Saturday following the third Friday of every month.






19. 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






20. 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.






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






22. 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.






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






24. An option strategy that generally involves the purchase of a farther-term option (call or put) and the selling (writing) of an equal number of nearer-term options of the same type and strike price. (buying 1ITI May 60 cal[ far term portion of spread]






25. An option that has no intrinsic value.






26. 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.






27. 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






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






29. 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)






30. An investment strategy in which stock is purchased and call options are written on a greater than one-for-one basis.More calls written than the equivalent number of shares purchased.






31. 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






32. 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).






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






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






35. 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.






36. 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






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






38. 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.






39. Charge levied for the privilege ofborrowing money






40. 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.






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






42. Third Friday of expiration month






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






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






45. An option that has no intrinsic value.






46. 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)






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






48. Investment strategy that has a similar risk/reward profile as another investment strategy. (a long May 60-65 call vertical spread is equivalent to a short May 60-65 put vertical spread).






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






50. Another name for calendar spread.