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 short stock position and a short put position.






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






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






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






5. A credit spread in which a rise in price of the underlying security will theoretically increase the profit value of the spread. (writing 1 XYZ Jan 55 put and buying 1 XYZ Jan 50 put)






6. Another name for calendar spread.






7. 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)






8. 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






9. 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






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






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






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






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






14. 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






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






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






17. Term used to describe how the theoretical value of an option 'erodes' or reduces with the passage of time. Time decay is specifically quantified by Theta.






18. 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.






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






20. A contract between a buyer and seller whereby the buyer acquires the right - but not the obligation - to buy a specified underlying instrument at a fixed price on or before a specified date.






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






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






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






24. 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






25. 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.






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






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






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






29. 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).






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






31. 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.






32. These options can be exercised on any business dy prior to expiration and the settlement value will be based on the index close that day - settled in the cash equivalent of the amount in-the-money.






33. The date an option contract becomes void.






34. Calculations performed on updated prices.






35. 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).






36. 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)






37. Fill-or-kill order






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






39. A short stock position and a short put position.






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






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






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






44. 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.






45. 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.






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






47. 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






48. In a customer transaction - edge refers to the markup or markdown price that a market maker generates in the deal. It can be thought of as a tax charged by the market maker for services rendered.






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






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