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 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.






2. The risk to an investor that the stock price will exactly equal the strike price of a written option at expiration. (risk to be pinned with stock)






3. 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






4. 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.






5. 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.






6. An option strategy that is neither bullish nor bearish.






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






8. 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






9. Calculations performed on updated prices.






10. Process by which the holder of an option notifies the seller of intention to take delivery of the underlying in the case of a call - or make delivery in the case of a put - at the specified exercise price.






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






12. 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.






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






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






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






16. Another name for calendar spread.






17. 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)






18. An option that has no intrinsic value.






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






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






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






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






23. Designated primary market maker.






24. Amount by which an option is ITM.






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






26. 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.






27. An investment strategy in which a long put and a short call with the same strike price and expiration are combined with long stock to lock in a nearly risk-less profit. (by purchasing 100 shares of XYZ stock at 50 - writing 1 XYZ Jan 50 call - and bu






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






29. 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






30. An option created as the result of a special event such as a stock split - stock dividend - merger or spin-off taking place during the life of an option. ( adjusted option may cover more than the usual one hundred shares)






31. Opening sale of a security.






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






33. Good Til Cancel






34. Good Til Cancel






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






36. 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)






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






38. Designated primary market maker.






39. The largest and oldest listed options exchange.






40. 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






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






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






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






44. Third Friday of expiration month






45. 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.






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






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






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






49. Procedure used by the options clearing corporation to exercise in-the-money options at expiration. (75 cents or more)






50. 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