Options Trading Options Market Mechanics 2

Question 1

What is the role of the Options Clearing Corporation (OCC) in the U.S. options market?

Accepted Answer

It acts as the central counterparty guaranteeing all options contracts

Answer

The OCC acts as the central counterparty and guarantor for all U.S. exchange-listed options contracts, ensuring contract performance.

Question 2

What is a 'weekly option' (also called a 'weekly')?

Accepted Answer

An option that expires on a Friday of the current or near-term week

Answer

Weekly options (weeklys) are short-dated options that expire on a Friday, offering traders a shorter time frame than standard monthly options.

Question 3

What does 'exercising' an option mean?

Accepted Answer

Using the right granted by the option to buy or sell the underlying

Answer

Exercising an option means the holder uses their contractual right to buy (call) or sell (put) the underlying security at the strike price.

Question 4

Which type of option can only be exercised at expiration?

Accepted Answer

European-style option

Answer

European-style options can only be exercised at expiration, unlike American-style options which can be exercised at any time before expiration.

Question 5

What is a 'LEAPS' option?

Accepted Answer

A long-term equity anticipation security with expiration over one year away

Answer

LEAPS (Long-term Equity AnticiPation Securities) are options with expiration dates more than one year in the future, allowing for longer-term directional trades.

Options Trading Practice Test

Options Trading Practice Test

Options Trading Options Market Mechanics 2