Test your basic knowledge |

Options Trading

Instructions:
  • Answer 50 questions in 15 minutes.
  • If you are not ready to take this test, you can study here.
  • Match each statement with the correct term.
  • Don't refresh. All questions and answers are randomly picked and ordered every time you load a test.

This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. The interest expense on money borrowed to finance a margined securities position.






2. A position established with the specific intent of protecting an existing position. (an owner of common stock may buy a put option to hedge against a possible stock price decline).






3. A spread in which the difference in the long and short options premiums results in a net debit.






4. A list of the options available for the underlying stock symbols in which you are interested.






5. A contract to buy or sell a predetermined Quantity of a commodity or financial product for a specific price on a given date.






6. A position resulting from the sale of a contract or instrument that you do not own.






7. The simultaneous purchase and sale of options of the same class at different strike prices - but with the same expiration date. (ABC April 150/155 call spread. you purchase the ABC Apr 150 call and sell the ABC Apr 155 call). similar to the outright






8. A measure of the volatility of the underlying security - derived by applying current prices rather than historical prices.






9. The ratio of trading volume in put options to the trading volume in call options. The ratio provides a quantitative measure of the bullishness or bearishness of investors.






10. A short stock position and a short put position.






11. A long put butterfly is established by buying one put at the lowest strike price - writing two puts at the middle strike price - and buying one put at the highest strike price.






12. The price that an owner of an option can purchase (call) or sell (put) the underlying stock.






13. An option strategy that involves an out-of-the-money call and an out-of-the-money put. This is normally used as a long stock protective strategy when the call is sold and the put is purchased. The opposite of this strategy - called a 'fence -' could






14. An order to buy or sell a security that will remain in effect until the order is executed or canceled






15. An option on shares of an individual common stock.






16. An order that is designated to be executed on or before the expiration date.






17. The degree to which the price of an underlying tends to fluctuate over time. This variable - which the market implies to the underlying - may result from pricing an option through a model.






18. Term used to describe how the theoretical value of an option 'erodes' or reduces with the passage of time. Time decay is specifically quantified by Theta.






19. The instrument (stock - future - or cash index) to be delivered when an option is exercised.






20. Another name for calendar spread.






21. A strategy that profits from a stock price decline. It is initiated by borrowing stock from a broker -dealer and selling it in the open market. This strategy is closed (covered) at a later date by buying back the stock and turning it to the lending b






22. The total number of outstanding option contracts in a given series






23. At the money






24. An option that can be exercised only at expiration. Usually expire the third Friday of every month






25. A short stock position and a short put position.






26. A strategy that profits from a stock price decline. It is initiated by borrowing stock from a broker -dealer and selling it in the open market. This strategy is closed (covered) at a later date by buying back the stock and turning it to the lending b






27. The part of an options total price that exceeds its intrinsic value. Price of an out-of-money option consists entirely of time value.






28. An investment strategy in which stock is purchased and call options are written on a greater than one-for-one basis.More calls written than the equivalent number of shares purchased.






29. A contract to buy or sell a predetermined Quantity of a commodity or financial product for a specific price on a given date.






30. An option that has no intrinsic value.






31. Constructin a portfolio to match the performance of a broad-based index - such as the S&P 500. Individuals can do this by purchasing shares in an index mutual fund.






32. An option that has intrinsic value






33. The lowest price at which a dealer or trader is willing to sell a tradable instrument at a particular time.






34. The date on which an option and the right to exercise it cease to exist. Listed stock options expire the Saturday following the third Friday of every month.






35. A graphical representation of the estimated theoretical value of an option at one point in time - at various prices of the underlying stock.






36. An investment strategy that attempts to lower risk by buying securities that have offsetting risk characteristics. A perfect hedge eliminates risk entirely. Hedging strategies lower the return because there is a cost involved in reducing risk.






37. The interest expense on money borrowed to finance a margined securities position.






38. Term used to describe the ownership of a security - contract - or commodity that grants the owner the right to transfer ownership by sale or gift.






39. A debit spread in which a decline in the price of the underlying security will theoretically increase the value of the spread. (writing 1 XYZ Jan 50 put and buying 1 XYZ Jan 55 put)






40. Two or more trading vehicles packaged to emulate another trading vehicle or spread. Because the package involves different components - price is also different - but risk is the same.






41. A strategy involving two or more options of the same type that will profit from a decline in the underlying stock. Consists of buying an option with a higher strike and selling an option with a lower strike. The maximum risk will be realized if the u






42. An option created as the result of a special event such as a stock split - stock dividend - merger or spin-off taking place during the life of an option. ( adjusted option may cover more than the usual one hundred shares)






43. A position that will perform best if there is little or no net change in the price of the underlying stock.






44. An option whose exercise price is equal to the current market price of the underlying security. An ATM option may or may not have intrinsic value.






45. A graphical representation of the estimated theoretical value of an option at one point in time - at various prices of the underlying stock.






46. An option position that involves the purchase/sale of a call and the sale (purchase of a put on the same underlying strike with the same expiration. Can also be referred to as any set of multiple purchases and sales of options.






47. The total price of an option: intrinsic value plus extrinsic value






48. An option whose underlying asset is an index.






49. The price of an option less its intrinsic value. The entire premium of an out-of-the-money option consists of extrinsic value. This is often referred to as the time value portion of option premiums.






50. The risk that a change in the interest rates will negatively affect the value of an investor's holdings; generally associated with bonds - but applying to all investments