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 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)






2. 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.






3. A position established with the specific intent of protecting an existing position. (an owner of common stock may buy a put option to hedge against a possible stock price decline).






4. 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.






5. Calculations performed on updated prices.






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






7. 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






8. Amount by which an option is ITM.






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






10. 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]






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






12. 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.






13. 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.






14. 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.






15. Another name for calendar spread.






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






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






18. This formula can be used to calculate a theoretical value for an option using current stock prices - expected dividends - the option's strike price - expected interest rates - time to expiration - and expected stock volatility.






19. The stock price(s) at which an option strategy results in neither a profit nor a loss.






20. Designated primary market maker.






21. 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






22. This formula can be used to calculate a theoretical value for an option using current stock prices - expected dividends - the option's strike price - expected interest rates - time to expiration - and expected stock volatility.






23. The ratio of trading volume in put options to the trading volume in call options. The ratio provides a quantitative measure of the bullishness or bearishness of investors.






24. 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.






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






26. An option whose underlying asset is an index.






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






28. Two or more trading vehicles packaged to emulate another trading vehicle or spread. Because the package involves different components - price is also different - but risk is the same.






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






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






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






32. 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.






33. 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.






34. 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.






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






36. 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.






37. 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






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






39. Fill-or-kill order






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






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






42. 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]






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






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






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






46. 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.






47. 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






48. A market drop in the price of a security






49. 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






50. 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