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. A strategy consisting of at least two components transacted simultaneously. The price relationship between each part - or 'leg -' could change based on a move in underlying price and or volatility. A spread is entered into with the expectation of eit






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






3. An investment strategy used by professional option traders in which a short put and long call with the same strike price and expiration are combined with short stock to lock in a price. (selling short 100 shares of XYZ stock - buying 1 XYZ May 60 cal






4. Good Til Cancel






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






6. A strategy consisting of at least two components transacted simultaneously. The price relationship between each part - or 'leg -' could change based on a move in underlying price and or volatility. A spread is entered into with the expectation of eit






7. Investment strategy that has a similar risk/reward profile as another investment strategy. (a long May 60-65 call vertical spread is equivalent to a short May 60-65 put vertical spread).






8. The purchase or sale of an equal number of puts or calls with the same underlying - stike price - and expiration.






9. An option strategy that is neither bullish nor bearish.






10. 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.






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






12. An open short option position that is offset by a corresponding stock position on a share-for-share basis. This ensures that if the owner of the option exercises - the writer of the option will not have a problem fulfilling the delivery requirements.






13. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.






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






15. A short stock position and a long call position.






16. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.






17. An option strategy in which call options are sold against equivalent amounts of long stock. ( writing 2XYZ Jan 50 calls while owning 200 shares of XYZ stock)






18. 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






19. 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






20. A delta-neutral spread composed of more long options than short options on the same underlying instrument. This position generally profits from a large movement in either direction in the underlying instrument.






21. Evaluating an options value through the use of a pricing model allows one to determine the theoretical value of the option(price you would expect to pay in order to break even)






22. 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






23. A long call position and a short put position.






24. A market drop in the price of a security






25. The use of money to create more money through an appreciating or income-producing asset.






26. The sensitivity of theoretical option prices with regard to small changes in interest rates. Increases in interest rates lead to higher call values and lower put values. Lower interest rates do the opposite.






27. A a feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.






28. The highest price a dealer is willing to pay for a security at a particular time.






29. 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)






30. The sensitivity of theoretical option prices with regard to small changes in time. Theta measures the rate of decay in the time value of options.






31. A long stock position and a long put position.






32. Amount by which an option is ITM.






33. 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.






34. 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






35. Procedure used by the options clearing corporation to exercise in-the-money options at expiration. (75 cents or more)






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






37. Long-term equity anticipation securities are calls and puts with expiration's as long as two to three years.






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






39. A prolonged period of falling prices. A bear market in stocks is usually brought on by the anticipation of declining economic activity.






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






41. 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.






42. Options contracts on the same class having the same strike price and expiration month. (all XYZ May 60 calls constitue a series.






43. 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.






44. 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






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






46. The use of money to create more money through an appreciating or income-producing asset.






47. 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






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






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






50. An order that is designated to be executed on or before the expiration date. (all or none)