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. Evaluating an options value through the use of a pricing model allows one to determine the theoretical value of the option(price you would expect to pay in order to break even)






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






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






4. 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.






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






6. 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.






7. Commodity trading advisor.






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






9. The sensitivity of theoretical option prices with regard to small changes in time. Theta measures the rate of decay in the time value of options.






10. 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.






11. 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.






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






13. 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.






14. 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.






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






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






17. 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.






18. Commodity trading advisor.






19. 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)






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






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






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






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






24. 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.






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






26. An option that can be exercised only at expiration. Usually expire the third Friday of every month






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






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






29. 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






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






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






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






33. 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






34. 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






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






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 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).






38. 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






39. The month during which the expiration date occurs






40. 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)






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. Fill-or-kill order






43. The difference in the premium prices of two options - where the credit premium of the one sold exceeds the debit premium of the one purchased. A bull spread with puts and a bear spread with calls are examples of credit spreads.






44. An option that has no intrinsic value.






45. 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.






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






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






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






50. 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.