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






2. Fill-or-kill order






3. 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)






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






5. 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.






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






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






8. 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.






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






10. 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






11. 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)






12. 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.






13. 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.






14. 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.






15. 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






16. 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).






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






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






19. A four-sided option spread that involves a long call and a short put at one strike price as well as a short call and a long put at another strike price. (buying 1 LMN Jan 50 call - and writing 1 LMN Jan 55 call; simultaneously buying 1 LMN Jan 55 put






20. A term describing one side of a spread position. A trader who legs into a spread establishes one side first - hoping for a favorable price movement so the other side can be executed at a better price.






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






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






23. 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)






24. Commodity trading advisor.






25. 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.






26. 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






27. The largest and oldest listed options exchange.






28. A term describing one side of a spread position. A trader who legs into a spread establishes one side first - hoping for a favorable price movement so the other side can be executed at a better price.






29. 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






30. Options that may be exercised on or before the expiration date.






31. 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






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






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






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






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






36. 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.






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






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






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






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






41. An option that has intrinsic value






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






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






44. 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.






45. 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.






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






47. 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.






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






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






50. An option that has no intrinsic value.