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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 how the theoretical value of an option 'erodes' or reduces with the passage of time. Time decay is specifically quantified by Theta.






2. Good Til Cancel






3. Third Friday of expiration month






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






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






6. The combination of a vertical and a calendar spread - wherein the investor buys and sells options of the same class at different expiration dates and different strike prices.






7. The date an option contract becomes void.






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






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






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. Same as ask price






12. The largest and oldest listed options exchange.






13. 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).






14. 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).






15. An option whose underlying asset is an index.






16. An order that is designated to be executed on or before the expiration date. (all or none)






17. 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).






18. 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.






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






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






21. An order that is designated to be executed on or before the expiration date. (all or none)






22. 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.






23. 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.






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






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






26. A list of the options available for the underlying stock symbols in which you are interested.






27. 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.






28. 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






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






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






32. An option strategy with limited risk and limited profit potential that involves both a long(or short) straddle - and a short (or long) strangle. (short strangle: buying 1 ABC May 90 call and 1 ABC May 90 put - and writing 1 ABC May 95 call and writin






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






34. 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.






35. 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)






36. 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.






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






38. 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.






39. Same as ask price






40. 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.






41. 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.






42. 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)






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






45. An option that has no intrinsic value.






46. 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.






47. An agent who facilitates trades between a buyer and a seller and receives a commission for services.






48. Another name for calendar spread.






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






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