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. 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.






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






4. A measure of actual stock price changes over a specific period of time.






5. Same as ask price






6. A term referring to all options of the same type- either calls or puts- having the same underlying instrument.






7. An agent who facilitates trades between a buyer and a seller and receives a commission for services.






8. 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






9. An order to buy or sell at the last price on the close.






10. The stock price(s) at which an option strategy results in neither a profit nor a loss.






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






12. The sensitivity (rate of change) of an option's theoretical value (assessed value) for a one dollar change in price of the underlying instrument. Expressed as a percentage - it represents an equivalent amount of underlying at a given moment in time.






13. The largest and oldest listed options exchange.






14. Calculations performed on updated prices.






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






16. 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.






17. These options can be exercised on any business dy prior to expiration and the settlement value will be based on the index close that day - settled in the cash equivalent of the amount in-the-money.






18. 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






19. 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).






20. An individual with the opinion that a security - or the market in general will decline in price; someone having a negative or pessimistic outlook.






21. Interest rate at which brokerage firms borrow from banks to finance their clients' security positions. The call loan rate is sometimes used because the loans can be called on a 24-hour notice.






22. The sensitivity of an options theoretical value to a change in implied volatility.






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






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






25. An option strategy that generally involves the purchase of a farther-term option (call or put) and the selling (writing) of an equal number of nearer-term options of the same type and strike price. (buying 1ITI May 60 cal[ far term portion of spread]






26. 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)






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






28. 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.






29. 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






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






31. Same as ask price






32. A term referring to all options of the same type- either calls or puts- having the same underlying instrument.






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






34. 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






35. 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






36. A compilation of the prices of several common entities into a single number; ex (S&P 100 Index).






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






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






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






40. 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).






41. 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.






42. An option whose underlying asset is an index.






43. 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.






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






45. 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)






46. An option strategy with limited risk and limited profit potential that involves both a long(or short) straddle - and a short (or long) strangle. (short strangle: buying 1 ABC May 90 call and 1 ABC May 90 put - and writing 1 ABC May 95 call and writin






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






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






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






50. These options can be exercised on any business dy prior to expiration and the settlement value will be based on the index close that day - settled in the cash equivalent of the amount in-the-money.