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. A long stock position and a short call position.






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






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






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






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






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






7. 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






8. 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






9. 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






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






11. 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.






12. 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.






13. Good Til Cancel






14. 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.






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






16. 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.






17. 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.






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






19. 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.






20. 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






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






22. 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.






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






24. 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.






25. The date an option contract becomes void.






26. The sensitivity of an option's delta at a given moment in time. It is the change in delta with respect to a 1-point change in the underlying. Examplee (let's say a call option with a 100 strike price has a 50 delta. If the underlying moves from 100 t






27. A list of the options available for the underlying stock symbols in which you are interested.






28. The sensitivity of an option's delta at a given moment in time. It is the change in delta with respect to a 1-point change in the underlying. Examplee (let's say a call option with a 100 strike price has a 50 delta. If the underlying moves from 100 t






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






30. 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.






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






32. 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.






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






35. 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.






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






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






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






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






40. Third Friday of expiration month






41. 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)






42. 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.






43. 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.






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






45. Third Friday of expiration month






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






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






48. The simultaneous purchase and sale of options of the same class (call or put - having same underlying) at the same strike prices - but with different expiration dates - selling the short-term option and buying the long-term option.






49. 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.






50. 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.