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 date an option contract becomes void.






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






3. A market drop in the price of a security






4. 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.






5. 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.






6. 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






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






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






9. The instrument (stock - future - or cash index) to be delivered when an option is exercised.






10. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.






11. 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.






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






13. The lowest price at which a dealer or trader is willing to sell a tradable instrument at a particular time.






14. An option that has no intrinsic value.






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






16. 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.






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






18. 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.






19. An adjective describing the belief that a stock or the market in general will neither rise nor decline significantly.






20. 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






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






22. An individual with the opinion that a security - or the market in general will decline in price; someone having a negative or pessimistic outlook.






23. A prolonged period of falling prices. A bear market in stocks is usually brought on by the anticipation of declining economic activity.






24. Another name for calendar spread.






25. A prolonged period of falling prices. A bear market in stocks is usually brought on by the anticipation of declining economic activity.






26. 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






27. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.






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






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






30. Calculations performed on updated prices.






31. 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)






32. 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






33. 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.






34. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.






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






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






37. The largest and oldest listed options exchange.






38. The lowest price at which a dealer or trader is willing to sell a tradable instrument at a particular time.






39. 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.






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






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






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. 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.






44. Fill-or-kill order






45. Same as ask price






46. 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)






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






48. 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






49. A strategy involving two or more options of the same type that will profit from a decline in the underlying stock. Consists of buying an option with a higher strike and selling an option with a lower strike. The maximum risk will be realized if the u






50. 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.