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






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. 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)






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






5. 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).






6. 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.






7. 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.






8. 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).






9. Designated primary market maker.






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






11. 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.






12. 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.






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






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






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






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






17. 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






18. 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)






19. 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.






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






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






22. 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






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






24. A position that will perform best if there is little or no net change in the price of the underlying stock.






25. Same as ask price






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






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






28. 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.






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






30. 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.






31. Third Friday of expiration month






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






33. 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)






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






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






36. An option that has intrinsic value






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






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






39. A contract to buy or sell a predetermined Quantity of a commodity or financial product for a specific price on a given date.






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






41. 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.






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






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






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






45. 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.






46. Commodity trading advisor.






47. 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






48. 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






49. 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).






50. 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.