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 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






2. Interest rate at which brokerage firms borrow from banks to finance their clients' security positions. The call loan rate is sometimes used because the loans can be called on a 24-hour notice.






3. 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)






4. A four-sided option spread that involves a long call and a short put at one strike price as well as a short call and a long put at another strike price. (buying 1 LMN Jan 50 call - and writing 1 LMN Jan 55 call; simultaneously buying 1 LMN Jan 55 put






5. 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)






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






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






8. 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






9. At the money






10. Charge levied for the privilege ofborrowing money






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






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






14. 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






15. Opening sale of a security.






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






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






18. An option that has no intrinsic value.






19. Commodity trading advisor.






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






21. 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.






22. Fill-or-kill order






23. 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.






24. 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






25. 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.






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






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






28. 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.






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






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






31. The degree to which the price of an underlying tends to fluctuate over time. This variable - which the market implies to the underlying - may result from pricing an option through a model.






32. In a customer transaction - edge refers to the markup or markdown price that a market maker generates in the deal. It can be thought of as a tax charged by the market maker for services rendered.






33. Fill-or-kill order






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






35. Designated primary market maker.






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






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






38. Amount by which an option is ITM.






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






40. 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.






41. An investment strategy used by professional option traders in which a short put and long call with the same strike price and expiration are combined with short stock to lock in a price. (selling short 100 shares of XYZ stock - buying 1 XYZ May 60 cal






42. 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






43. 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.






44. An option whose underlying asset is an index.






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






47. A debit spread in which a decline in the price of the underlying security will theoretically increase the value of the spread. (writing 1 XYZ Jan 50 put and buying 1 XYZ Jan 55 put)






48. An option that has no intrinsic value.






49. In a customer transaction - edge refers to the markup or markdown price that a market maker generates in the deal. It can be thought of as a tax charged by the market maker for services rendered.






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