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 number of underlying shares covered by one option contract. (100 shares for one equity option)






2. Opening sale of a security.






3. Opening sale of a security.






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






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






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






7. 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.






8. The largest and oldest listed options exchange.






9. The cycle of expiration dates used in short-term options trading. there are three cycles: (January - April - July - October; February - May - August - November; or March - June - September - December) Because options are traded in contracts for three






10. 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.






11. 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.






12. The difference in the premium prices of two options - where the credit premium of the one sold exceeds the debit premium of the one purchased. A bull spread with puts and a bear spread with calls are examples of credit spreads.






13. The seller of an option contract Who is obligated to meet the terms of delivery if the option is exercised.






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






15. The seller of an option contract Who is obligated to meet the terms of delivery if the option is exercised.






16. 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






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






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






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






20. A credit spread in which a rise in price of the underlying security will theoretically increase the profit value of the spread. (writing 1 XYZ Jan 55 put and buying 1 XYZ Jan 50 put)






21. Commodity trading advisor.






22. 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






23. 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.






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






25. A strategy involving four options and four strike prices - and that has both limited risk and limited profit potential. A long call condor spread is establish by buying one call the lowest strike - writing one call at the second strike - writing anot






26. Charge levied for the privilege ofborrowing money






27. The sensitivity of an option's delta at a given moment in time. It is the change in delta with respect to a 1-point change in the underlying. Examplee (let's say a call option with a 100 strike price has a 50 delta. If the underlying moves from 100 t






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






29. 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.






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






31. A short option position that is not fully collateralized if notification of assignment is received. A short call position is uncovered if the writer does not have a long stock or long call position. A short put is naked if the writer is not short sto






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






33. A term describing one side of a spread position. A trader who legs into a spread establishes one side first - hoping for a favorable price movement so the other side can be executed at a better price.






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






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






36. 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.






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






38. Received notification of an assignment by rhw options clearing corporation.






39. 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.






40. 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.






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






42. 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.






43. In a customer transaction - edge refers to the markup or markdown price that a market maker generates in the deal. It can be thought of as a tax charged by the market maker for services rendered.






44. A trading technique that involves the simultaneous purchase and sale of identical assets traded on two different exchanges with the intention of profiting by a difference in price between exchanges.






45. The estimated value of an option derived from a mathematical model.






46. Designated primary market maker.






47. The difference in the premium prices of two options - where the credit premium of the one sold exceeds the debit premium of the one purchased. A bull spread with puts and a bear spread with calls are examples of credit spreads.






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






49. 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.






50. Process by which the holder of an option notifies the seller of intention to take delivery of the underlying in the case of a call - or make delivery in the case of a put - at the specified exercise price.