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






2. A contract that gives the owner the right - if exercised - to buy or sell a security at a specific price within a specific time limit.






3. 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.






4. The price that an owner of an option can purchase (call) or sell (put) 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. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.






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






8. The month during which the expiration date occurs






9. The part of an options total price that exceeds its intrinsic value. Price of an out-of-money option consists entirely of time value.






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






11. 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






12. 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.






13. A market drop in the price of a security






14. 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






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






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






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






19. 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.






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






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






22. 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.






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






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






25. 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.






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






27. A debit spread in which a decline in the price of the underlying security will theoretically increase the value of the spread. (writing 1 XYZ Jan 50 put and buying 1 XYZ Jan 55 put)






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






29. 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.






30. 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.






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






32. 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






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






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






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






36. An investment strategy used by professional option traders in which a short put and long call with the same strike price and expiration are combined with short stock to lock in a price. (selling short 100 shares of XYZ stock - buying 1 XYZ May 60 cal






37. Evaluating an options value through the use of a pricing model allows one to determine the theoretical value of the option(price you would expect to pay in order to break even)






38. 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)






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






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






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






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 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






44. A debit spread in which a decline in the price of the underlying security will theoretically increase the value of the spread. (writing 1 XYZ Jan 50 put and buying 1 XYZ Jan 55 put)






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






46. 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






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






48. The date an option contract becomes void.






49. An option whose underlying asset is an index.






50. At the money