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






2. An open short option position that is offset by a corresponding stock position on a share-for-share basis. This ensures that if the owner of the option exercises - the writer of the option will not have a problem fulfilling the delivery requirements.






3. A market drop in the price of a security






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






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






6. 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






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






8. Fill-or-kill order






9. 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)






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 strategy involving two or more options of the same type (or options combined with an underlying stock position) that will profit from a rise in the price of the underlying stock. Consists or selling an option with a higher strike - and buying an op






12. Options contracts on the same class having the same strike price and expiration month. (all XYZ May 60 calls constitue a series.






13. 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)






14. 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.






15. An option that can be exercised only at expiration. Usually expire the third Friday of every month






16. 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.






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






18. 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.






19. Calculations performed on updated prices.






20. 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.






21. 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.






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






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






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






25. 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.






26. 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)






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






28. 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.






29. Charge levied for the privilege ofborrowing money






30. An order to buy or sell at the last price on the close.






31. A strategy that profits from a stock price decline. It is initiated by borrowing stock from a broker -dealer and selling it in the open market. This strategy is closed (covered) at a later date by buying back the stock and turning it to the lending b






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






33. A a feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.






34. 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.






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






36. 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)






37. 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






38. 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






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






40. At the money






41. A prolonged period of falling prices. A bear market in stocks is usually brought on by the anticipation of declining economic activity.






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






43. 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






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






45. 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)






46. The total price of an option: intrinsic value plus extrinsic value






47. 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.






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






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






50. 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