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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 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.






2. The date an option contract becomes void.






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






5. 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.






6. 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






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






8. 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)






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






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






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






12. Opening sale of a security.






13. 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






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






15. 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)






16. 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






17. An option that has no intrinsic value.






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






19. The total number of outstanding option contracts in a given series






20. Good Til Cancel






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






22. A long call butterfly is created by buying one call at the lowest strike price - selling two calls at the middle strike price - and buying one call at the highest strike price. (buying 1 ABC Jan 40 call - writing 2 ABC Jan 45 calls - and buying 1 ABC






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






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






25. 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.






26. A long stock position and a short call position.






27. 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.






28. 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






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






30. 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.






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






32. Good Til Cancel






33. 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.






34. 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.






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






36. An option that has intrinsic value






37. 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]






38. A measure of actual stock price changes over a specific period of time.






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. A strategy consisting of at least two components transacted simultaneously. The price relationship between each part - or 'leg -' could change based on a move in underlying price and or volatility. A spread is entered into with the expectation of eit






41. 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






42. Same as ask price






43. 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






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






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






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






47. An option that has intrinsic value






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






49. 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.






50. 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.