Options Trading Options Market Mechanics

Question 1

What is 'open interest' in the options market?

Accepted Answer

The total number of outstanding options contracts that have not been settled

Answer

The number of options trades executed in a single day

Answer

The difference between bid and ask prices

Answer

The total premium collected on all open positions

Question 2

In the U.S., one standard equity options contract typically represents how many shares?

Accepted Answer

100 shares

Answer

10 shares

Answer

1,000 shares

Answer

1 share

Question 3

What is the 'bid-ask spread' in options trading?

Accepted Answer

The difference between the highest price a buyer will pay and the lowest price a seller will accept

Answer

The difference between the strike price and the stock price

Answer

The spread between two different strike prices in a spread strategy

Answer

The difference between implied and historical volatility

Question 4

What does 'assignment' mean in options trading?

Accepted Answer

The obligation to fulfill the option contract when the holder exercises it

Answer

Being assigned a new options position by your broker

Answer

The process of rolling an option to a new expiration

Answer

When an option is automatically closed at expiration

Question 5

What is the last day an American-style option can be exercised?

Accepted Answer

The expiration date

Answer

The settlement date

Answer

Three days before expiration

Answer

The trading day after expiration

Question 6

What happens to an in-the-money option that is not sold or exercised by expiration?

Accepted Answer

It is automatically exercised by the broker

Answer

It expires worthless

Answer

It is rolled to the next expiration automatically

Answer

It is converted into a futures contract