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






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






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






4. Commodity trading advisor.






5. Amount by which an option is ITM.






6. The largest and oldest listed options exchange.






7. 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






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






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






10. 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






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. An option strategy that is neither bullish nor bearish.






13. 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).






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






15. 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.






16. 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.






17. 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.






18. An order that is designated to be executed on or before the expiration date.






19. A delta-neutral spread composed of more long options than short options on the same underlying instrument. This position generally profits from a large movement in either direction in the underlying instrument.






20. 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)






21. Opening sale of a security.






22. 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.






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






24. 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)






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 type of order that requires that the order be executed completely or not at all.






27. 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






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






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






30. 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.






31. An order to buy or sell at the last price on the close.






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






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






34. An agent who facilitates trades between a buyer and a seller and receives a commission for services.






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






36. 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.






37. 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.






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






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






40. The cycle of expiration dates used in short-term options trading. there are three cycles: (January - April - July - October; February - May - August - November; or March - June - September - December) Because options are traded in contracts for three






41. Calculations performed on updated prices.






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






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






44. Received notification of an assignment by rhw options clearing corporation.






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






46. 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.






47. 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






48. A measure of the volatility of the underlying security - derived by applying current prices rather than historical prices.






49. Same as ask price






50. Opening sale of a security.