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






2. 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.






3. Third Friday of expiration month






4. The part of an options total price that exceeds its intrinsic value. Price of an out-of-money option consists entirely of time value.






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






6. An option that has no intrinsic value.






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






8. 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.






9. 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.






10. Commodity trading advisor.






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






12. 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.






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






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






15. 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.






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






17. Opening sale of a security.






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






19. A strategy involving two or more options of the same type (or options combined with an underlying stock position) that will profit from a rise in the price of the underlying stock. Consists or selling an option with a higher strike - and buying an op






20. Investment strategy that has a similar risk/reward profile as another investment strategy. (a long May 60-65 call vertical spread is equivalent to a short May 60-65 put vertical spread).






21. A position that will perform best if there is little or no net change in the price of the underlying stock.






22. 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.






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 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.






25. Good Til Cancel






26. 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.






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






28. Options contracts on the same class having the same strike price and expiration month. (all XYZ May 60 calls constitue a series.






29. A prolonged period of falling prices. A bear market in stocks is usually brought on by the anticipation of declining economic activity.






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






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






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






33. 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.






34. Options that may be exercised on or before the expiration date.






35. An order to buy or sell a security that will remain in effect until the order is executed or canceled






36. Charge levied for the privilege ofborrowing money






37. A prolonged period of falling prices. A bear market in stocks is usually brought on by the anticipation of declining economic activity.






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






40. Designated primary market maker.






41. 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).






42. Good Til Cancel






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






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






45. 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]






46. 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.






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






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






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






50. Procedure used by the options clearing corporation to exercise in-the-money options at expiration. (75 cents or more)