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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 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 total number of outstanding option contracts in a given series






4. The combination of a vertical and a calendar spread - wherein the investor buys and sells options of the same class at different expiration dates and different strike prices.






5. 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)






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






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






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






9. The month during which the expiration date occurs






10. Interest rate at which brokerage firms borrow from banks to finance their clients' security positions. The call loan rate is sometimes used because the loans can be called on a 24-hour notice.






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






12. A credit spread in which a decline in the price of the underlying security will theoretically increase the value of the spread. (buying 1 XYZ Jan 55 call and writing 1 XYZ Jan 50 call)






13. 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






14. Same as ask price






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






16. 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






17. The number of underlying shares covered by one option contract. (100 shares for one equity option)






18. An option that has intrinsic value






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






20. 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.






21. An option that has intrinsic value






22. 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.






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






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






25. 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.






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






27. Interest rate at which brokerage firms borrow from banks to finance their clients' security positions. The call loan rate is sometimes used because the loans can be called on a 24-hour notice.






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






29. The time of day by which all exercise notices must be received on the expiration date.






30. 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






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






32. A compilation of the prices of several common entities into a single number; ex (S&P 100 Index).






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






34. A market drop in the price of a security






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






36. A short option position that is not fully collateralized if notification of assignment is received. A short call position is uncovered if the writer does not have a long stock or long call position. A short put is naked if the writer is not short sto






37. 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






38. Designated primary market maker.






39. The combination of a vertical and a calendar spread - wherein the investor buys and sells options of the same class at different expiration dates and different strike prices.






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






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






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






43. 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)






44. 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.






45. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.






46. The purchase or sale of an equal number of puts or calls with the same underlying - stike price - and expiration.






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






48. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.






49. 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)






50. 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.






Can you answer 50 questions in 15 minutes?



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