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 total price of an option: intrinsic value plus extrinsic value






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






3. 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).






4. Process by which the holder of an option notifies the seller of intention to take delivery of the underlying in the case of a call - or make delivery in the case of a put - at the specified exercise price.






5. A short stock position and a short put position.






6. 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.






7. 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






8. An investment strategy that attempts to lower risk by buying securities that have offsetting risk characteristics. A perfect hedge eliminates risk entirely. Hedging strategies lower the return because there is a cost involved in reducing risk.






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 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.






11. Commodity trading advisor.






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






13. The month during which the expiration date occurs






14. 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.






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






16. 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






17. An option that has no intrinsic value.






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






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






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






21. 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)






22. A market drop in the price of a security






23. 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)






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






25. A long stock position and a long put position.






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






27. An order to buy or sell at the last price on the close.






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. 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.






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






31. 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.






32. 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.






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






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






35. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.






36. A market drop in the price of a security






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






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






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






40. 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.






41. 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]






42. Designated primary market maker.






43. 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






44. An option strategy that involves an out-of-the-money call and an out-of-the-money put. This is normally used as a long stock protective strategy when the call is sold and the put is purchased. The opposite of this strategy - called a 'fence -' could






45. Calculations performed on updated prices.






46. 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






47. An option whose underlying asset is an index.






48. An order to buy or sell at the last price on the close.






49. At the money






50. The largest and oldest listed options exchange.