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. The highest price a dealer is willing to pay for a security at a particular time.






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






4. 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).






5. 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)






6. 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.






7. Opening sale of a security.






8. The date an option contract becomes void.






9. Good Til Cancel






10. 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






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






12. 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.






13. A market drop in the price of a security






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






15. Charge levied for the privilege ofborrowing money






16. Amount by which an option is ITM.






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






18. An option whose exercise price is equal to the current market price of the underlying security. An ATM option may or may not have intrinsic value.






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






20. 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.






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






22. 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






23. An option strategy that generally involves the purchase of a farther-term option (call or put) and the selling (writing) of an equal number of nearer-term options of the same type and strike price. (buying 1ITI May 60 cal[ far term portion of spread]






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






25. 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.






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






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






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






29. 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.






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






31. 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






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






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






34. 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.






35. 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).






36. 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.






37. Same as ask price






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






39. 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






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






41. 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






42. An option whose exercise price is equal to the current market price of the underlying security. An ATM option may or may not have intrinsic value.






43. 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






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






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






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






47. An option that has no intrinsic value.






48. Opening sale of a security.






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






50. 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)