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






2. The difference in the premium prices of two options - where the credit premium of the one sold exceeds the debit premium of the one purchased. A bull spread with puts and a bear spread with calls are examples of credit spreads.






3. 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






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






5. At the money






6. 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






7. 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






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






9. Received notification of an assignment by rhw options clearing corporation.






10. 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.






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






12. 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.






13. The number of underlying shares covered by one option contract. (100 shares for one equity option)






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






15. 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.






16. 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)






17. 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.






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 cycle of expiration dates used in short-term options trading. there are three cycles: (January - April - July - October; February - May - August - November; or March - June - September - December) Because options are traded in contracts for three






20. 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)






21. 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.






22. Designated primary market maker.






23. 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]






24. The part of an options total price that exceeds its intrinsic value. Price of an out-of-money option consists entirely of time value.






25. 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






26. The stock price(s) at which an option strategy results in neither a profit nor a loss.






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






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






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






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






32. 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






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






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






35. 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)






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






37. 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






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






39. Calculations performed on updated prices.






40. 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






41. Third Friday of expiration month






42. Amount by which an option is ITM.






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






44. 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






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






46. 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.






47. An option that has no intrinsic value.






48. Charge levied for the privilege ofborrowing money






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






50. 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.