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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. An option whose underlying asset is an index.






2. 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.






3. 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.






4. 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






5. 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






6. 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.






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






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






9. 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






10. The degree to which the price of an underlying tends to fluctuate over time. This variable - which the market implies to the underlying - may result from pricing an option through a model.






11. 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






12. 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)






13. 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.






14. 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






15. 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






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






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






18. Amount by which an option is ITM.






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






20. The combination of a vertical and a calendar spread - wherein the investor buys and sells options of the same class at different expiration dates and different strike prices.






21. 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






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






23. 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)






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






25. 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






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






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






28. 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






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






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






31. 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.






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






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






34. 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.






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






36. A a feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.






37. 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






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






39. The sensitivity of an option's delta at a given moment in time. It is the change in delta with respect to a 1-point change in the underlying. Examplee (let's say a call option with a 100 strike price has a 50 delta. If the underlying moves from 100 t






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






41. 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.






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






43. 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.






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






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






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






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






48. 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.






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






50. 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.