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






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 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






4. 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.






5. Constructin a portfolio to match the performance of a broad-based index - such as the S&P 500. Individuals can do this by purchasing shares in an index mutual fund.






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






7. 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.






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






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 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)






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






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






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






14. 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.






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






16. Fill-or-kill order






17. 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






18. The lowest price at which a dealer or trader is willing to sell a tradable instrument at a particular time.






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






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






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






22. Another name for calendar spread.






23. 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






24. An investment strategy that attempts to lower risk by buying securities that have offsetting risk characteristics. A perfect hedge eliminates risk entirely. Hedging strategies lower the return because there is a cost involved in reducing risk.






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






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






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






28. Fill-or-kill order






29. 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.






30. 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.






31. A contract to buy or sell a predetermined Quantity of a commodity or financial product for a specific price on a given date.






32. 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






33. 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.






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






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






36. The total number of outstanding option contracts in a given series






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






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






39. 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.






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






41. 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.






42. At the money






43. Charge levied for the privilege ofborrowing money






44. 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).






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






46. 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






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






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






49. An option that has intrinsic value






50. 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