Options Trading Options Market Mechanics 1

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

Open interest represents the total number of open (unsettled) options contracts currently held by market participants.

Question 2

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

Accepted Answer

100 shares

Answer

One standard U.S. equity options contract represents 100 shares of the underlying stock, so premiums are multiplied by 100.

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 bid-ask spread is the gap between what buyers are willing to pay (bid) and what sellers are asking (ask), representing a transaction cost for traders.

Question 4

What does 'assignment' mean in options trading?

Accepted Answer

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

Answer

Assignment occurs when the holder of an option exercises their right, obligating the option seller to buy or sell shares at the agreed strike price.

Question 5

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

Accepted Answer

The expiration date

Answer

American-style options can be exercised on any trading day up to and including the expiration date.

Options Trading Practice Test

Options Trading Practice Test

Options Trading Options Market Mechanics 1