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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 seller of an option contract Who is obligated to meet the terms of delivery if the option is exercised.






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






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






4. 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.






5. Fill-or-kill order






6. A measure of the volatility of the underlying security - derived by applying current prices rather than historical prices.






7. The highest price a dealer is willing to pay for a security at a particular time.






8. The largest and oldest listed options exchange.






9. 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.






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






11. 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.






12. Opening sale of a security.






13. 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).






14. 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.






15. 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






16. 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






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






18. Charge levied for the privilege ofborrowing money






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






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






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






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






23. 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






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






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






26. The month during which the expiration date occurs






27. 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.






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






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






30. At the money






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






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






33. 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)






34. A term describing one side of a spread position. A trader who legs into a spread establishes one side first - hoping for a favorable price movement so the other side can be executed at a better price.






35. A contract between a buyer and seller whereby the buyer acquires the right - but not the obligation - to buy a specified underlying instrument at a fixed price on or before a specified date.






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






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






38. 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.






39. 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






40. Process by which the holder of an option notifies the seller of intention to take delivery of the underlying in the case of a call - or make delivery in the case of a put - at the specified exercise price.






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






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






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






44. 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






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






46. Designated primary market maker.






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






48. 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)






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






50. Same as ask price