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






2. 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)






3. 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)






4. 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.






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






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






7. 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.






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






9. An open short option position that is offset by a corresponding stock position on a share-for-share basis. This ensures that if the owner of the option exercises - the writer of the option will not have a problem fulfilling the delivery requirements.






10. 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






11. 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






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






13. 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)






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






15. A strategy consisting of at least two components transacted simultaneously. The price relationship between each part - or 'leg -' could change based on a move in underlying price and or volatility. A spread is entered into with the expectation of eit






16. 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.






17. An open short option position that is offset by a corresponding stock position on a share-for-share basis. This ensures that if the owner of the option exercises - the writer of the option will not have a problem fulfilling the delivery requirements.






18. 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






19. 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.






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






21. 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.






22. 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






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






24. 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)






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






26. 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






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






28. 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.






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






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






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






32. An option that has no intrinsic value.






33. A market drop in the price of a security






34. 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.






35. 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






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






37. 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






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






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






40. 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.






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






42. 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.






43. 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.






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






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






46. 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.






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






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






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






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