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. Procedure used by the options clearing corporation to exercise in-the-money options at expiration. (75 cents or more)






2. 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.






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






4. 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






5. An option that has no intrinsic value.






6. 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.






7. Good Til Cancel






8. 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






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






10. 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






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






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






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






14. 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.






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






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






17. An option strategy that generally involves the purchase of a farther-term option (call or put) and the selling (writing) of an equal number of nearer-term options of the same type and strike price. (buying 1ITI May 60 cal[ far term portion of spread]






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






19. 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)






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






21. Received notification of an assignment by rhw options clearing corporation.






22. 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)






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






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






25. 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.






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






27. The date an option contract becomes void.






28. 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)






29. The price of an option less its intrinsic value. The entire premium of an out-of-the-money option consists of extrinsic value. This is often referred to as the time value portion of option premiums.






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






31. 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).






32. 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.






33. 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.






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






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






36. 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.






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






38. 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.






39. 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






40. 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.






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






42. 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).






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






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






45. Opening sale of a security.






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






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






48. 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






49. 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.






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