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 facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.






2. 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.






3. 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






4. 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.






5. 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






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






7. 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






8. 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.






9. 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.






10. 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)






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






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






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






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






15. Amount by which an option is ITM.






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






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






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






20. 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.






21. 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.






22. Commodity trading advisor.






23. Same as ask price






24. Designated primary market maker.






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






26. The month during which the expiration date occurs






27. 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.






28. 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).






29. An option whose underlying asset is an index.






30. A type of order that requires that the order be executed completely or not at all.






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






32. 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






33. 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)






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






35. 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.






36. 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






37. 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)






38. 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.






39. Calculations performed on updated prices.






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






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






42. 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.






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






44. The degree to which the price of an underlying tends to fluctuate over time. This variable - which the market implies to the underlying - may result from pricing an option through a model.






45. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.






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






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






48. An investment strategy in which a long put and a short call with the same strike price and expiration are combined with long stock to lock in a nearly risk-less profit. (by purchasing 100 shares of XYZ stock at 50 - writing 1 XYZ Jan 50 call - and bu






49. Opening sale of a security.






50. Fill-or-kill order