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Options Trading

Instructions:
  • Answer 50 questions in 15 minutes.
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  • 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 interest expense on money borrowed to finance a margined securities position.






2. Procedure used by the options clearing corporation to exercise in-the-money options at expiration. (75 cents or more)






3. 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.






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






5. 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)






6. 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






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






8. Fill-or-kill order






9. A market drop in the price of a security






10. 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)






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






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






13. 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)






14. 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)






15. 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.






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






17. 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.






18. 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






19. The month during which the expiration date occurs






20. 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.






21. 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.






22. A market drop in the price of a security






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






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






25. 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.






26. Interest rate at which brokerage firms borrow from banks to finance their clients' security positions. The call loan rate is sometimes used because the loans can be called on a 24-hour notice.






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






28. 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.






29. Another name for calendar spread.






30. 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.






31. 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






32. A strategy involving four options of the same type that span three strike prices. The strategy has both limited risk and limited profit potential.






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






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






35. A position resulting from the sale of a contract or instrument that you do not own.






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






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






39. 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)






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






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






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






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






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






45. 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.






46. 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.






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






48. Designated primary market maker.






49. Interest rate at which brokerage firms borrow from banks to finance their clients' security positions. The call loan rate is sometimes used because the loans can be called on a 24-hour notice.






50. 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







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