Chapter 1 Calls And Puts

Question 1

A unit of ownership in the capital of a corporation

Answer 1

Share

Question 2

An investment in the form of a loan made to earn interest, such as the purchase of a bond

Answer 2

Debt investment

Question 3

A contract that provides you with the right to execute a stock transaction-to buy or sell 100 shares of stock

Answer 3

Option

Question 4

A lot of 100 shares of stock or of higher numbers divisible by 100, the usual trading unit on the public exchanges

Answer 4

Round lot

Question 5

A lot of shares that contains fewer than the more typical round lot trading unit of 100 shares

Answer 5

Odd lot

Question 6

An option acquired by a buyer or granted by a seller to buy 100 shares of stock at a fixed price within a specified time period

Answer 6

Call

Question 7

An investment in the form of part ownership, such as the purchase of shares of stock in a corporation.

Answer 7

Equity investment

Question 8

An option acquired by a buyer or granted by a seller to sell 100 shares of stock at a fixed price within a specified time period

Answer 8

Put

Question 9

The value of an investment at any given time or date; the amount a buyer is willing to pay to acquire an investment and what a seller is also willing to receive to transfer the same investment

Answer 9

Market value

Question 10

An option traded on a public exchange and listed in the published reports in the financial press

Answer 10

Listed option

Question 11

An investor who purchases a call or put option; the buyer realizes a profit if the value of stock moves above the specified price(call) or below the specified price (put)

Answer 11

Buyer

Question 12

An investor who grants a right in an option to someone else; the seller realizes a profit if the value of the stock moves below the specified price (call) or above the specified price (put)

Answer 12

Seller

Question 13

The market forces that determine the current value for stocks. The number of buyers represent demand for shares, and the number of sellers represents supply. The price of stocks rises as demand increases and falls as supply increases

Answer 13

Supply and demand

Question 14

The public exchanges in which stocks, bonds, options, and other products are traded publicly, and in which values are established by ever-changing supply and demand on the part of buyers and sellers

Answer 14

Auction markets

Question 15

A liquid market, one which buyers can easily sell their holdings, or in which sellers can easily find buyers, at current price

Answer 15

Ready market

Question 16

The fixed price to be paid for 100 shares of stock, specified in the option contract; the transaction price per share of stock upon exercise of that option, regardless of the current market value of the stock

Answer 16

Striking price

Question 17

Long-term equity anticipation security, long term option contract that work just like standardized options, but with expiration up to three years

Answer 17

Leaps

Question 18

A strategy in the stock market in which shares of stock are first sold, creating a short position for the investor, and later bought in a closing purchase transaction

Answer 18

Short selling

Question 19

The status assumed by investors when they enter a sale order in advance of entering a buy order. The short position is closed by later entering a buy order, or through expiration

Answer 19

Short position

Question 20

The status assumed by investors when they enter a buy order in advance of entering a sell order. The long position is closed by later entering a sell order, or through expiration

Answer 20

Long position

Question 21

A study of financial information and attributes of a company’s management and competitive position, as a means for selecting stocks

Answer 21

Fundamental analysis

Question 22

A study of trends and patterns of price movement in stocks, including price per share, the shape of price movements on charts, high and low ranges, and trends in pricing over time

Answer 22

Technical analysis

Question 23

An indicator of the degree of change in a stock’s market value, measured over a 12 month period and stated as a percentage. To measure volatility, subtract the lowest 12 month price from the highest 12 month price, and divide the answer by the 12 month lowest price

Answer 23

Volatility

Question 24

The level of trading activity in a stock, an option, or the market as a whole

Answer 24

Volume

Question 25

That portion of an option’s current value equal to the number of points that is in the money. One points equals one dollar of value per share, so 35 points equals $35 per share

Answer 25

Intrinsic value

Question 26

That portion of an option’s current premium above intrinsic value

Answer 26

Time value

Question 27

A specific segment of the market defined by product or service offered by a company. Factors affecting value(cyclical, economic, or market-based) make each sector distinct and different from other sectors, also affecting option valuation

Answer 27

Sector

Question 28

The portion of an option’s premium generated from volatility in the underlying stock and from market perception of potential price changes until expiration date; a nonintrinsic portion of the premium value not specifically caused by the element of time

Answer 28

Extrinsic value