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 contract that gives the owner the right - if exercised - to buy or sell a security at a specific price within a specific time limit.






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






3. An option strategy in which call options are sold against equivalent amounts of long stock. ( writing 2XYZ Jan 50 calls while owning 200 shares of XYZ stock)






4. 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).






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






6. 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.






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






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






9. An investment strategy in which a long put and a short call with the same strike price and expiration are combined with long stock to lock in a nearly risk-less profit. (by purchasing 100 shares of XYZ stock at 50 - writing 1 XYZ Jan 50 call - and bu






10. A a feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.






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






12. 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.






13. 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.






14. 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.






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






16. The largest and oldest listed options exchange.






17. An option that has intrinsic value






18. The risk to an investor that the stock price will exactly equal the strike price of a written option at expiration. (risk to be pinned with stock)






19. 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






20. 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






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






22. Commodity trading advisor.






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






24. 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.






25. Amount by which an option is ITM.






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






27. Charge levied for the privilege ofborrowing money






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






29. 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.






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






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






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






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






34. An option that has intrinsic value






35. Same as ask price






36. 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.






37. 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.






38. 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.






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






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






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






42. 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






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






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






45. 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.






46. 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.






47. 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






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






49. 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






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