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Options Trading

Instructions:
  • Answer 50 questions in 15 minutes.
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  • 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. 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.






2. A long call butterfly is created by buying one call at the lowest strike price - selling two calls at the middle strike price - and buying one call at the highest strike price. (buying 1 ABC Jan 40 call - writing 2 ABC Jan 45 calls - and buying 1 ABC






3. Another name for calendar spread.






4. 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.






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






6. 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






7. 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.






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






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






10. Commodity trading advisor.






11. 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.






12. 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.






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






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






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






16. 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.






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






18. 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)






19. 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.






20. 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






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






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






23. 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.






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






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






26. 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






27. 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






28. 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.






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






30. Designated primary market maker.






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






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






33. 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.






34. 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.






35. Calculations performed on updated prices.






36. 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






37. The highest price a dealer is willing to pay for a security at a particular time.






38. 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






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






40. 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






41. 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.






42. 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)






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






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






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






46. A graphical representation of the estimated theoretical value of an option at one point in time - at various prices of the underlying stock.






47. Amount by which an option is ITM.






48. 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






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






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






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