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 long stock position and a long put position.






2. Third Friday of expiration month






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






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






5. The month during which the expiration date occurs






6. This formula can be used to calculate a theoretical value for an option using current stock prices - expected dividends - the option's strike price - expected interest rates - time to expiration - and expected stock volatility.






7. Another name for calendar spread.






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






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






10. Good Til Cancel






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






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






13. 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.






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






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






16. A market drop in the price of a security






17. The month during which the expiration date occurs






18. 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).






19. 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)






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






21. 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






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






23. 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.






24. 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






25. The risk to an investor that the stock price will exactly equal the strike price of a written option at expiration. (risk to be pinned with stock)






26. 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.






27. 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)






28. The date an option contract becomes void.






29. Amount by which an option is ITM.






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






31. 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






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






33. 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






34. 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.






35. 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






36. 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.






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






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






39. 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]






40. The simultaneous purchase and sale of options of the same class (call or put - having same underlying) at the same strike prices - but with different expiration dates - selling the short-term option and buying the long-term option.






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






42. 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.






43. 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.






44. An option that has no intrinsic value.






45. Calculations performed on updated prices.






46. Amount by which an option is ITM.






47. 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.






48. A long call butterfly is created by buying one call at the lowest strike price - selling two calls at the middle strike price - and buying one call at the highest strike price. (buying 1 ABC Jan 40 call - writing 2 ABC Jan 45 calls - and buying 1 ABC






49. 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.






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