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 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.






2. 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.






3. Another name for calendar spread.






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






5. An option that has intrinsic value






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






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






8. Charge levied for the privilege ofborrowing money






9. 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






10. 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






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






12. 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.






13. Same as ask price






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






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






16. 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.






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






18. 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.






19. 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)






20. 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)






21. 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.






22. The largest and oldest listed options exchange.






23. The simultaneous purchase and sale of options of the same class (call or put - having same underlying) at the same strike prices - but with different expiration dates - selling the short-term option and buying the long-term option.






24. 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)






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






26. 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.






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






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






29. 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]






30. Commodity trading advisor.






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






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






33. Good Til Cancel






34. Calculations performed on updated prices.






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






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






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






38. 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.






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






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






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






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






43. 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).






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






45. 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.






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






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






48. Designated primary market maker.






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






50. 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)