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






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






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






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






5. 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).






6. 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.






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






8. 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.






9. 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






10. 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.






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






12. Calculations performed on updated prices.






13. The month during which the expiration date occurs






14. 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.






15. Two or more trading vehicles packaged to emulate another trading vehicle or spread. Because the package involves different components - price is also different - but risk is the same.






16. 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).






17. 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.






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






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






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






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






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






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






24. 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.






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






26. The largest and oldest listed options exchange.






27. 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






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






29. 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.






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






31. 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)






32. The price that an owner of an option can purchase (call) or sell (put) the underlying stock.






33. Good Til Cancel






34. The largest and oldest listed options exchange.






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






36. 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).






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






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






39. 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.






40. 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.






41. 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.






42. 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






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






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






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






46. 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.






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






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






49. 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.






50. Commodity trading advisor.