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 short call position and a long put position.






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






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






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






5. 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.






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






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






8. 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).






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






10. 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.






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






12. 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






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. A short stock position and a short put position.






16. 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.






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






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






19. 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






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






21. At the money






22. Fill-or-kill order






23. 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.






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






25. The date an option contract becomes void.






26. 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.






27. 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.






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






29. 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)






30. An option that has intrinsic value






31. Calculations performed on updated prices.






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






33. 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.






34. 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.






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






36. 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.






37. 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.






38. At the money






39. 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






40. An option that has no intrinsic value.






41. 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.






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






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






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






45. A measure of actual stock price changes over a specific period of time.






46. 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.






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






48. 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).






49. 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.






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