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 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






2. Commodity trading advisor.






3. 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






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






5. 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






6. 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)






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






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






9. 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.






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






11. A type of order that requires that the order be executed completely or not at all.






12. At the money






13. 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






14. 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.






15. 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.






16. An option whose underlying asset is an index.






17. 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)






18. 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.






19. 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.






20. Constructin a portfolio to match the performance of a broad-based index - such as the S&P 500. Individuals can do this by purchasing shares in an index mutual fund.






21. 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






22. 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.






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






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






25. 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.






26. The date an option contract becomes void.






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






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






29. Charge levied for the privilege ofborrowing money






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






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






32. The month during which the expiration date occurs






33. An option that has intrinsic value






34. An option strategy that generally involves the purchase of a farther-term option (call or put) and the selling (writing) of an equal number of nearer-term options of the same type and strike price. (buying 1ITI May 60 cal[ far term portion of spread]






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






36. 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






37. The largest and oldest listed options exchange.






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






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






40. 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.






41. A market drop in the price of a security






42. 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.






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






44. The combination of a vertical and a calendar spread - wherein the investor buys and sells options of the same class at different expiration dates and different strike prices.






45. Fill-or-kill order






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






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






48. An option strategy that generally involves the purchase of a farther-term option (call or put) and the selling (writing) of an equal number of nearer-term options of the same type and strike price. (buying 1ITI May 60 cal[ far term portion of spread]






49. 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.






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