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. A long call position and a short put position.






2. A market drop in the price of a security






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






4. An option that has no intrinsic value.






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






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






7. 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






8. 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






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






10. 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).






11. At the money






12. 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)






13. 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






14. A position that will perform best if there is little or no net change in the price of the underlying stock.






15. Opening sale of a security.






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






17. An option strategy that generally involves the purchase of a farther-term option (call or put) and the selling (writing) of an equal number of nearer-term options of the same type and strike price. (buying 1ITI May 60 cal[ far term portion of spread]






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






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






20. A compilation of the prices of several common entities into a single number; ex (S&P 100 Index).






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






22. 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.






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






24. 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.






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






26. 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.






27. 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.






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






29. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.






30. Another name for calendar spread.






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






32. 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.






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






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






35. An option whose exercise price is equal to the current market price of the underlying security. An ATM option may or may not have intrinsic value.






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






37. An investment strategy that attempts to lower risk by buying securities that have offsetting risk characteristics. A perfect hedge eliminates risk entirely. Hedging strategies lower the return because there is a cost involved in reducing risk.






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






39. 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).






40. 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.






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






42. 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






43. Charge levied for the privilege ofborrowing money






44. 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.






45. 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






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






47. 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






48. 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.






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






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