Unit 10

Question 1

The point at which gains equal losses

Answer 1

Breakeven Point

Question 2

A US dollar settled option security representing the right to buy or sell a specified amount of a foreign currency

Answer 2

Foreign currency option (FCO)

Question 3

A security representing the right to buy or sell government debt securities

Answer 3

Interest rate option

Question 4

When a portfolio manager buys puts on the index to offset loss of the market value of the stock falls

Answer 4

Portfolio insurance

Question 5

An index designed to reflect the movement of the market as a whole

Ex: S&P 100, 500

Answer 5

Broad based index

Question 6

Where the premium received on the short call is the same amount or higher than the premium paid for the long put

Answer 6

Cashless collar

Question 7

Option strategy generally used to protect an unrealized gain on a long stock position

Answer 7

Collar

Question 8

A blanket term for a number of option strategies involving a put and a call on the same stock at different strike prices, expirations or both

Answer 8

Combination

Question 9

An options investors position of purchasing a call and a put on the same underlying security with the same exercise price and expiration month. The investor is looking for either a rise or fall in the price of the underlying security or futures contract and hopes to avoid a flat market

Answer 9

Long straddle

Question 10

An options investors potions that results from buying a call and a put or selling a call and a put on the same security with the same exercise price and expiration month

Answer 10

Straddle

Question 11

Determined by the option that is more costly of the two- the one with higher premium

Answer 11

Market attitude

Question 12

An option strategy where the premiums paid for buying the long options are more than the premiums received for the short options- a net debit to customer account

Answer 12

Debit spread

Question 13

An option position established by the simultaneous purchase and sale of options of the same class but with different exercise prices and expiration dates

Answer 13

Diagonal spread

Question 14

The purchase and sale of two options on the same underlying security and with the same exercise price but with different expiration dates

Aka: time spread, calendar spread

Answer 14

Horizontal spread

Question 15

The purchase and sale of two options on the same underlying security and with the same expiration date but with different exercise prices

Aka: price spread, money spread

Answer 15

Vertical spread

Question 16

1. In a quotation, the difference between the bid and ask prices
2. An options position established by purchasing one option and selling another option of the same class buy of a different series
3. The price difference between two futures contracts. It involves holding a long and a short position in two or more related futures contracts with the objective of profiting from a change in the price relationship

Answer 16

Spread

Question 17

Reflects the current open interest in the trading of put options to call options. Can be used to gauge investor sentiment and can be calculated to measure broad sectors of the market

Answer 17

Put-call ratio

Question 18

An option hedge position in which the investor writes more than one call option for every 100 shares of underlying stock the investor owns. As a result, the investor has a partly covered position and a partly naked position

Answer 18

Ratio call writing

Question 19

An investor who writes a call option without owning the underlying stock or other related assets that would enable the investor to deliver the stock, should the option be exercised

Answer 19

Uncovered call writer

Question 20

An investor who sells a put option while owning an asset that guarantees the ability to pay if the put is exercised

Answer 20

Covered put writer

Question 21

An investor who sells a call option while owning the underlying security or some other asset that guarantees the ability to deliver if the call is exercised

Answer 21

Covered call writer

Question 22

Bearish or neutral investor who wants the market to fall

Answer 22

Call writer

Question 23

Bullish investor who wants the market to rise

Answer 23

Call buyer

Question 24

Describes an in the money option trading at its intrinsic value

“Equal”

Answer 24

Parity

Question 25

Formula for time value

Answer 25

Pre - IV

Question 26

The amount an investor pays for an option above its intrinsic value. It reflects the amount of time left until expiration

Answer 26

Time value

Question 27

When the market price of the underlying asset is less than the strike price Advantageous to sellers

Answer 27

Out of the money

Question 28

When the market price of the underlying asset equals the strike price

Answer 28

At the money

Question 29

When the market price of the underlying asset exceeds the strike price of the option Buyers want this, sellers do not

Answer 29

In the money

Question 30

The potential profit to be made from exercising an option. A call option is said to have this when the underlying stock is trading above the exercise price

Answer 30

Intrinsic value

Question 31

What is the settlement date the assigned parties are required to make upon exercise?

Answer 31

T + 2

Question 32

The organization that issues options, standardized option contracts and guarantees their performance

Answer 32

Options Clearing Corporation (OCC)

Question 33

What is the settlement date for options that are bought and sold?

Answer 33

T + 1

Question 34

An options transaction in which the seller buys back an option in the same series; the two transactions effectively cancel each other out and the position is liquidated

Answer 34

Closing purchase

Question 35

An options transaction in which the buyer sells an option in the same series; the two transactions effectively cancel each other out and the position is liquidated

Answer 35

Closing sale

Question 36

Writer has obligation to buy 100 shares of a specific stock at the strike price if the buyer exercises the contract

Answer 36

Short put

Question 37

Buyer owns the right to sell 100 shares of a specific stock at the exercise price if she chooses to exercise. The holder of the option can also sell the option if she desires

Answer 37

Long put

Question 38

A call writer has the obligation to sell 100 shares of a specific stock at the strike price if the buyer exercises the contract

Answer 38

Short call

Question 39

A call buyer owns the right to buy 100 shares of a specific stock at the exercise price before the expiration if he chooses to exercise. The holder of the option can also sell the option if he desires.

Answer 39

Long call

Question 40

Receives premium from buyer Credit to account when premium is received Opens their position with a credit Obligation when contract is exercised

Answer 40

Seller, short, writer

Question 41

Pays premium Debit in account when premium is paid Opens their position with a debit to their account Has the right to exercise

Answer 41

Buyer, long, holder, owner

Question 42

A contract that represents the right to buy or sell a security or futures contract at a specified time. The purchaser acquired a right and the seller assumes an obligation

Answer 42

Option

Question 43

The document a customer must sign within 15 calendar days of being approved for this type of trading. In it, the customer agrees to abide by the rules of exchanges and not to exceed position or exercise limits

Answer 43

Option agreement

Question 44

An investment vehicle, the value of which is based on the value of another security. Futures, forwards, swaps and options are among the most common. Generally used by institutional investors to increase overall portfolio return or hedge portfolio risk

Answer 44

Derivative