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






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






3. Charge levied for the privilege ofborrowing money






4. A measure of actual stock price changes over a specific period of time.






5. 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






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






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






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






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






10. An option whose underlying asset is an index.






11. An option whose underlying asset is an index.






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






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






14. 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.






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






16. Calculations performed on updated prices.






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






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






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






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






21. 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]






22. 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)






23. 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)






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






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






26. Opening sale of a security.






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






28. The date an option contract becomes void.






29. 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.






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






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






32. 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






33. 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






34. Good Til Cancel






35. 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)






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






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






38. 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.






39. Fill-or-kill order






40. 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)






41. 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.






42. 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).






43. A term referring to all options of the same type- either calls or puts- having the same underlying instrument.






44. 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.






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






46. 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.






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






48. 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.






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






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