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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. The simultaneous purchase and sale of options of the same class at different strike prices - but with the same expiration date. (ABC April 150/155 call spread. you purchase the ABC Apr 150 call and sell the ABC Apr 155 call). similar to the outright






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






3. An investment strategy used by professional option traders in which a short put and long call with the same strike price and expiration are combined with short stock to lock in a price. (selling short 100 shares of XYZ stock - buying 1 XYZ May 60 cal






4. An option whose underlying asset is an index.






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






6. 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)






7. 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.






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






9. Same as ask price






10. At the money






11. 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)






12. At the money






13. Third Friday of expiration month






14. Amount by which an option is ITM.






15. 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.






16. Good Til Cancel






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






18. A compilation of the prices of several common entities into a single number; ex (S&P 100 Index).






19. 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.






20. 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






21. 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.






22. 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






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






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






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






26. An option strategy in which call options are sold against equivalent amounts of long stock. ( writing 2XYZ Jan 50 calls while owning 200 shares of XYZ stock)






27. Calculations performed on updated prices.






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






29. 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






30. 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.






31. 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.






32. An individual with the opinion that a security - or the market in general will decline in price; someone having a negative or pessimistic outlook.






33. Charge levied for the privilege ofborrowing money






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






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






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






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






38. 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






39. 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.






40. 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.






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






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






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






44. 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.






45. A term referring to all options of the same type- either calls or puts- having the same underlying instrument.






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






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






49. 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.






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