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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. 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.






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






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






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






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






6. An open short option position that is offset by a corresponding stock position on a share-for-share basis. This ensures that if the owner of the option exercises - the writer of the option will not have a problem fulfilling the delivery requirements.






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






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






9. 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.






10. 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.






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






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






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






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






15. 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)






16. 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.






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






18. 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.






19. 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.






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






21. A market drop in the price of a security






22. 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






23. 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.






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






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






26. 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.






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






28. Options contracts on the same class having the same strike price and expiration month. (all XYZ May 60 calls constitue a series.






29. 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






30. 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)






31. 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)






32. 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.






33. 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)






34. Amount by which an option is ITM.






35. An option that has no intrinsic value.






36. The date an option contract becomes void.






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






38. 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






39. 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.






40. Third Friday of expiration month






41. 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






42. Opening sale of a security.






43. 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






44. 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)






45. 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






46. The largest and oldest listed options exchange.






47. 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.






48. An adjective describing the belief that a stock or the market in general will neither rise nor decline significantly.






49. 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.






50. An option whose underlying asset is an index.