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 short call position and a long put position.






2. 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.






3. The month during which the expiration date occurs






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






5. Calculations performed on updated prices.






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






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






8. 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.






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






10. The largest and oldest listed options exchange.






11. Commodity trading advisor.






12. A strategy involving two or more options of the same type that will profit from a decline in the underlying stock. Consists of buying an option with a higher strike and selling an option with a lower strike. The maximum risk will be realized if the u






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






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






15. 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.






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






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






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






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






20. Opening sale of a security.






21. 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






22. 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.






23. A market drop in the price of a security






24. 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.






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






26. 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).






27. In a customer transaction - edge refers to the markup or markdown price that a market maker generates in the deal. It can be thought of as a tax charged by the market maker for services rendered.






28. 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.






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






31. 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.






32. Term used to describe how the theoretical value of an option 'erodes' or reduces with the passage of time. Time decay is specifically quantified by Theta.






33. 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).






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






35. 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






36. 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.






37. Same as ask price






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






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






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






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






42. 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.






43. A measure of the volatility of the underlying security - derived by applying current prices rather than historical prices.






44. 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).






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






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






47. 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.






48. 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.






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






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