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 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






2. 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






3. 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)






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






5. Third Friday of expiration month






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






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






8. A market drop in the price of a security






9. 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.






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






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






12. 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.






13. 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)






14. The ratio of trading volume in put options to the trading volume in call options. The ratio provides a quantitative measure of the bullishness or bearishness of investors.






15. Designated primary market maker.






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






17. 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.






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






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






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






21. 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)






22. Charge levied for the privilege ofborrowing money






23. A contract that gives the owner the right - if exercised - to buy or sell a security at a specific price within a specific time limit.






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






25. The interest expense on money borrowed to finance a margined securities position.






26. 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






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






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






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. Amount by which an option is ITM.






31. A strategy involving two or more options of the same type (or options combined with an underlying stock position) that will profit from a rise in the price of the underlying stock. Consists or selling an option with a higher strike - and buying an op






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






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






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






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






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






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






38. 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.






39. Fill-or-kill order






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






42. Amount by which an option is ITM.






43. 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)






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






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






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






47. A contract that gives the owner the right - if exercised - to buy or sell a security at a specific price within a specific time limit.






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






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






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.