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 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.






2. 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.






3. 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.






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






5. 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.






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






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






8. 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






9. 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).






10. 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)






11. The simultaneous purchase and sale of options of the same class at different strike prices - but with the same expiration date. (ABC April 150/155 call spread. you purchase the ABC Apr 150 call and sell the ABC Apr 155 call). similar to the outright






12. 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.






13. 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.






14. Options that may be exercised on or before the expiration date.






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






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






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






18. At the money






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






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






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






22. 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.






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






24. 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.






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






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






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






28. The month during which the expiration date occurs






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






30. 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






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






32. 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






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






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






35. 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.






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






37. A market drop in the price of a security






38. 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.






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






40. Commodity trading advisor.






41. 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






42. 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






43. An option created as the result of a special event such as a stock split - stock dividend - merger or spin-off taking place during the life of an option. ( adjusted option may cover more than the usual one hundred shares)






44. Charge levied for the privilege ofborrowing money






45. Third Friday of expiration month






46. A strategy involving two or more options of the same type (or options combined with an underlying stock position) that will profit from a rise in the price of the underlying stock. Consists or selling an option with a higher strike - and buying an op






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






48. The combination of a vertical and a calendar spread - wherein the investor buys and sells options of the same class at different expiration dates and different strike prices.






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






50. 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.