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 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






2. 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.






3. A market drop in the price of a security






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






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






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






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






8. An option created as the result of a special event such as a stock split - stock dividend - merger or spin-off taking place during the life of an option. ( adjusted option may cover more than the usual one hundred shares)






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






10. 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.






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






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






13. 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.






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






15. An option that has intrinsic value






16. Good Til Cancel






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






18. The total price of an option: intrinsic value plus extrinsic value






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






20. Opening sale of a security.






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






22. The risk that a change in the interest rates will negatively affect the value of an investor's holdings; generally associated with bonds - but applying to all investments






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






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






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






26. Long-term equity anticipation securities are calls and puts with expiration's as long as two to three years.






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






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






29. Fill-or-kill order






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






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






32. 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)






33. 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.






34. 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






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






36. 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






37. Opening sale of a security.






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






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






40. 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






41. Good Til Cancel






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






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






44. A strategy consisting of at least two components transacted simultaneously. The price relationship between each part - or 'leg -' could change based on a move in underlying price and or volatility. A spread is entered into with the expectation of eit






45. 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.






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






48. 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.






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






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