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. Amount by which an option is ITM.






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






3. 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)






4. 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






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






6. Charge levied for the privilege ofborrowing money






7. A means of increasing return or worth without increasing investment.






8. Charge levied for the privilege ofborrowing money






9. At the money






10. 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






11. 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






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






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






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






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






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






17. 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






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






19. The month during which the expiration date occurs






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






21. 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.






22. Another name for calendar spread.






23. 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.






24. 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.






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






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






27. The largest and oldest listed options exchange.






28. 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.






29. 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.






30. 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.






31. The price that an owner of an option can purchase (call) or sell (put) the underlying stock.






32. 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






33. The largest and oldest listed options exchange.






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






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






36. 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






37. 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.






38. 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






39. Amount by which an option is ITM.






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






41. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.






42. An option whose underlying asset is an index.






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






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






45. An option that has intrinsic value






46. 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






47. Opening sale of a security.






48. 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






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






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.