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






2. 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






3. Good Til Cancel






4. 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.






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






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






8. Same as ask price






9. The sensitivity of theoretical option prices with regard to small changes in time. Theta measures the rate of decay in the time value of options.






10. The process by which the seller of an option is notified of the buyer's intention to exercise that option.






11. 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.






12. 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.






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






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






15. 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






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






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






18. Calculations performed on updated prices.






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






20. Opening sale of a security.






21. The risk that a change in the interest rates will negatively affect the value of an investor's holdings; generally associated with bonds - but applying to all investments






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






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






24. 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).






25. 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






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






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






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






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






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






31. Interest rate at which brokerage firms borrow from banks to finance their clients' security positions. The call loan rate is sometimes used because the loans can be called on a 24-hour notice.






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






33. An option that has no intrinsic value.






34. Same as ask price






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






36. The sensitivity of theoretical option prices with regard to small changes in time. Theta measures the rate of decay in the time value of options.






37. Designated primary market maker.






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






39. 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.






40. Amount by which an option is ITM.






41. 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.






42. 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.






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






44. Another name for calendar spread.






45. 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.






46. The month during which the expiration date occurs






47. 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.






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 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)






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