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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. Charge levied for the privilege ofborrowing money






2. 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






3. 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)






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






5. 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.






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






7. Same as ask price






8. 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)






9. Third Friday of expiration month






10. The purchase or sale of an equal number of puts or calls with the same underlying - stike price - and expiration.






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






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






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 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.






15. 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.






16. 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.






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






18. 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.






19. 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.






20. 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)






21. 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.






22. An adjective describing the belief that a stock or the market in general will neither rise nor decline significantly.






23. 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.






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






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






26. Third Friday of expiration month






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






28. Opening sale of a security.






29. 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






30. 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)






31. The ratio of trading volume in put options to the trading volume in call options. The ratio provides a quantitative measure of the bullishness or bearishness of investors.






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






33. A credit spread in which a decline in the price of the underlying security will theoretically increase the value of the spread. (buying 1 XYZ Jan 55 call and writing 1 XYZ Jan 50 call)






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






35. 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]






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






37. 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.






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






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






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






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






42. 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






43. At the money






44. 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






45. 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.






46. 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






47. 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






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






49. 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.






50. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.