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. Amount by which an option is ITM.






2. 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).






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






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






5. 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.






6. Charge levied for the privilege ofborrowing money






7. 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.






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 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)






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






11. Charge levied for the privilege ofborrowing money






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






13. Commodity trading advisor.






14. Calculations performed on updated prices.






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






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






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






18. 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.






19. Third Friday of expiration month






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






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






22. 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.






23. An option that has intrinsic value






24. 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.






25. The sensitivity (rate of change) of an option's theoretical value (assessed value) for a one dollar change in price of the underlying instrument. Expressed as a percentage - it represents an equivalent amount of underlying at a given moment in time.






26. Opening sale of a security.






27. The total number of outstanding option contracts in a given series






28. Fill-or-kill order






29. Another name for calendar spread.






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






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






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






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






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. The date an option contract becomes void.






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






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






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






39. An option that has no intrinsic value.






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






41. 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.






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






43. 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)






44. An option that has no intrinsic value.






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






46. A contract to buy or sell a predetermined Quantity of a commodity or financial product for a specific price on a given date.






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






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






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






50. 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.