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 option strategy with limited risk and limited profit potential that involves both a long(or short) straddle - and a short (or long) strangle. (short strangle: buying 1 ABC May 90 call and 1 ABC May 90 put - and writing 1 ABC May 95 call and writin






2. 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.






3. Amount by which an option is ITM.






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






5. 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






6. Good Til Cancel






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






8. Good Til Cancel






9. 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.






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






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






12. The largest and oldest listed options exchange.






13. 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.






14. 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.






15. 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).






16. 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.






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






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






19. The month during which the expiration date occurs






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






21. 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.






22. 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






23. 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.






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






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






26. 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






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






28. 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






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






30. 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.






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






32. Another name for calendar spread.






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






34. 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.






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






36. 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.






37. 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)






38. Opening sale of a security.






39. An option strategy with limited risk and limited profit potential that involves both a long(or short) straddle - and a short (or long) strangle. (short strangle: buying 1 ABC May 90 call and 1 ABC May 90 put - and writing 1 ABC May 95 call and writin






40. An option that has intrinsic value






41. 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.






42. 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






43. A long stock position and a long put position.






44. 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






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






46. A market drop in the price of a security






47. 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






48. 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.






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






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.