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






2. Amount by which an option is ITM.






3. 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.






4. 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.






5. 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






6. 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






7. 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.






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






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






10. 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.






11. 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.






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






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






14. 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.






15. 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).






16. 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.






17. 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.






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






19. Charge levied for the privilege ofborrowing money






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






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






22. An option strategy that is neither bullish nor bearish.






23. 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).






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






25. 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]






26. An adjective describing the belief that a stock or the market in general will neither rise nor decline significantly.






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






28. A strategy involving two or more options of the same type that will profit from a decline in the underlying stock. Consists of buying an option with a higher strike and selling an option with a lower strike. The maximum risk will be realized if the u






29. 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.






30. 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]






31. 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.






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






33. Same as ask price






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






35. A strategy involving four options of the same type that span three strike prices. The strategy has both limited risk and limited profit potential.






36. 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.






37. Another name for calendar spread.






38. 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.






39. 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.






40. An option that has no intrinsic value.






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






42. An option that has no intrinsic value.






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






44. Evaluating an options value through the use of a pricing model allows one to determine the theoretical value of the option(price you would expect to pay in order to break even)






45. Commodity trading advisor.






46. 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






47. 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.






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






49. A contract to buy or sell a predetermined Quantity of a commodity or financial product for a specific price on a given date.






50. 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.