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. 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.






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






3. 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]






4. Amount by which an option is ITM.






5. The largest and oldest listed options exchange.






6. 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






7. 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.






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






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






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






11. A strategy involving four options of the same type that span three strike prices. The strategy has both limited risk and limited profit potential.






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 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.






14. An adjective describing the belief that a stock or the market in general will neither rise nor decline significantly.






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






16. 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






17. Fill-or-kill order






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






19. 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)






20. 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






21. A contract between a buyer and seller whereby the buyer acquires the right - but not the obligation - to buy a specified underlying instrument at a fixed price on or before a specified date.






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






23. 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






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






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






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






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






28. A means of increasing return or worth without increasing investment.






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






30. 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)






31. 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.






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






33. The date an option contract becomes void.






34. Charge levied for the privilege ofborrowing money






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. Designated primary market maker.






37. 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.






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






39. Designated primary market maker.






40. 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.






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






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






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. An option strategy that is neither bullish nor bearish.






45. 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]






46. 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.






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






48. The process by which the seller of an option is notified of the buyer's intention to exercise that option.






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






50. 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