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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. Calculations performed on updated prices.






2. Designated primary market maker.






3. 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.






4. Good Til Cancel






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






6. Calculations performed on updated prices.






7. 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






8. 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.






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






10. The date an option contract becomes void.






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






12. The estimated value of an option derived from a mathematical model.






13. A market drop in the price of a security






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






15. 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






16. A trading technique that involves the simultaneous purchase and sale of identical assets traded on two different exchanges with the intention of profiting by a difference in price between exchanges.






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






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






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






20. Amount by which an option is ITM.






21. The estimated value of an option derived from a mathematical model.






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






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






24. 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.






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






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






27. An investment strategy used by professional option traders in which a short put and long call with the same strike price and expiration are combined with short stock to lock in a price. (selling short 100 shares of XYZ stock - buying 1 XYZ May 60 cal






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






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






30. 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






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






32. 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)






33. An option created as the result of a special event such as a stock split - stock dividend - merger or spin-off taking place during the life of an option. ( adjusted option may cover more than the usual one hundred shares)






34. A market drop in the price of a security






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






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






37. 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






38. 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)






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. An option that has intrinsic value






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






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






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






44. 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).






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






46. 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]






47. 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






48. 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)






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






50. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.







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