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 ratio of trading volume in put options to the trading volume in call options. The ratio provides a quantitative measure of the bullishness or bearishness of investors.






2. 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)






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






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






5. The sensitivity of an options theoretical value to a change in implied volatility.






6. The lowest price at which a dealer or trader is willing to sell a tradable instrument at a particular time.






7. 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.






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






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. An option that has intrinsic value






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






12. 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.






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






14. A strategy consisting of at least two components transacted simultaneously. The price relationship between each part - or 'leg -' could change based on a move in underlying price and or volatility. A spread is entered into with the expectation of eit






15. Amount by which an option is ITM.






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






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






18. 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.






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






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






21. 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






22. 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






23. Calculations performed on updated prices.






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






25. 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






26. 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)






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






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






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






30. Designated primary market maker.






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






32. 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






33. 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.






34. The highest price a dealer is willing to pay for a security at a particular time.






35. 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






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






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






38. 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.






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






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






41. 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.






42. 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.






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






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






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






46. 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






47. 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






48. 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.






49. 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.






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