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. Evaluating an options value through the use of a pricing model allows one to determine the theoretical value of the option(price you would expect to pay in order to break even)






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






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






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






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






6. 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.






7. Amount by which an option is ITM.






8. 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






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






11. 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)






12. Term used to describe the ownership of a security - contract - or commodity that grants the owner the right to transfer ownership by sale or gift.






13. Designated primary market maker.






14. The date an option contract becomes void.






15. 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.






16. Another name for calendar spread.






17. An option on shares of an individual common stock.






18. 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.






19. An option whose underlying asset is an index.






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






21. 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.






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






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






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






25. 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.






26. 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






27. The sensitivity of theoretical option prices with regard to small changes in time. Theta measures the rate of decay in the time value of options.






28. At the money






29. 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)






30. At the money






31. 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.






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






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






34. 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.






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






36. Good Til Cancel






37. Third Friday of expiration month






38. 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)






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






40. Evaluating an options value through the use of a pricing model allows one to determine the theoretical value of the option(price you would expect to pay in order to break even)






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






42. Calculations performed on updated prices.






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






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






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






46. 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).






47. 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.






48. A market drop in the price of a security






49. The largest and oldest listed options exchange.






50. 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.