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. An option that has intrinsic value






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






3. 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






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






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






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






7. 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.






8. A strategy involving four options of the same type that span three strike prices. The strategy has both limited risk and limited profit potential.






9. 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)






10. Fill-or-kill order






11. 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).






12. The simultaneous purchase and sale of options of the same class at different strike prices - but with the same expiration date. (ABC April 150/155 call spread. you purchase the ABC Apr 150 call and sell the ABC Apr 155 call). similar to the outright






13. 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.






14. 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.






15. The use of money to create more money through an appreciating or income-producing asset.






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






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






18. The risk that a change in the interest rates will negatively affect the value of an investor's holdings; generally associated with bonds - but applying to all investments






19. The cycle of expiration dates used in short-term options trading. there are three cycles: (January - April - July - October; February - May - August - November; or March - June - September - December) Because options are traded in contracts for three






20. 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.






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






22. An investment strategy in which stock is purchased and call options are written on a greater than one-for-one basis.More calls written than the equivalent number of shares purchased.






23. 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.






24. An investment strategy in which stock is purchased and call options are written on a greater than one-for-one basis.More calls written than the equivalent number of shares purchased.






25. Third Friday of expiration month






26. 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.






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






28. 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.






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






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






31. 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.






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






33. Good Til Cancel






34. An option whose underlying asset is an index.






35. Commodity trading advisor.






36. The month during which the expiration date occurs






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






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






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






40. A credit spread in which a rise in price of the underlying security will theoretically increase the profit value of the spread. (writing 1 XYZ Jan 55 put and buying 1 XYZ Jan 50 put)






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






42. 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.






43. 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






44. 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)






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






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. 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






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






49. The use of money to create more money through an appreciating or income-producing asset.






50. 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