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 time of day by which all exercise notices must be received on the expiration date.






2. 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)






3. An investment strategy in which a long put and a short call with the same strike price and expiration are combined with long stock to lock in a nearly risk-less profit. (by purchasing 100 shares of XYZ stock at 50 - writing 1 XYZ Jan 50 call - and bu






4. 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.






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






6. An option that has no intrinsic value.






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






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






9. Third Friday of expiration month






10. 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)






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






12. 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






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






14. Third Friday of expiration month






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






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






17. 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.






18. 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)






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






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






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






22. A trading technique that involves the simultaneous purchase and sale of identical assets traded on two different exchanges with the intention of profiting by a difference in price between exchanges.






23. 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)






24. 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






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






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






27. Interest rate at which brokerage firms borrow from banks to finance their clients' security positions. The call loan rate is sometimes used because the loans can be called on a 24-hour notice.






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






29. 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






30. 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.






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






32. A trading technique that involves the simultaneous purchase and sale of identical assets traded on two different exchanges with the intention of profiting by a difference in price between exchanges.






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






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






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






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






37. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.






38. Designated primary market maker.






39. 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.






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






41. Good Til Cancel






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






43. Charge levied for the privilege ofborrowing money






44. 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)






45. 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)






46. 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






47. A contract between a buyer and seller whereby the buyer acquires the right - but not the obligation - to buy a specified underlying instrument at a fixed price on or before a specified date.






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






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






50. At the money