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






2. 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






3. 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






4. Long-term equity anticipation securities are calls and puts with expiration's as long as two to three years.






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






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






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






8. An option that has intrinsic value






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






10. A strategy involving four options and four strike prices - and that has both limited risk and limited profit potential. A long call condor spread is establish by buying one call the lowest strike - writing one call at the second strike - writing anot






11. A delta-neutral spread composed of more long options than short options on the same underlying instrument. This position generally profits from a large movement in either direction in the underlying instrument.






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






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






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






15. An option whose underlying asset is an index.






16. 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.






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






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






19. The date an option contract becomes void.






20. 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.






21. The date an option contract becomes void.






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






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






24. Long-term equity anticipation securities are calls and puts with expiration's as long as two to three years.






25. 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.






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






27. 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.






28. 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.






29. Another name for calendar spread.






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






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






32. Opening sale of a security.






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






34. 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)






35. 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






36. 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.






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






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






39. A long put butterfly is established by buying one put at the lowest strike price - writing two puts at the middle strike price - and buying one put at the highest strike price.






40. The largest and oldest listed options exchange.






41. 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.






42. 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).






43. 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.






44. Calculations performed on updated prices.






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






46. 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)






47. An investment strategy that attempts to lower risk by buying securities that have offsetting risk characteristics. A perfect hedge eliminates risk entirely. Hedging strategies lower the return because there is a cost involved in reducing risk.






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






49. 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






50. 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