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. An option that has no intrinsic value.






2. 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.






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






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






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






6. 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






7. 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)






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






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






10. An order to buy or sell a security that will remain in effect until the order is executed or canceled






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






12. Good Til Cancel






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






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






15. 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.






16. 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.






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






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






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






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






21. Designated primary market maker.






22. The month during which the expiration date occurs






23. Good Til Cancel






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






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






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






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






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






29. 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.






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






31. 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.






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






33. 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






34. A strategy that profits from a stock price decline. It is initiated by borrowing stock from a broker -dealer and selling it in the open market. This strategy is closed (covered) at a later date by buying back the stock and turning it to the lending b






35. 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






36. An option that has intrinsic value






37. The difference in the premium prices of two options - where the credit premium of the one sold exceeds the debit premium of the one purchased. A bull spread with puts and a bear spread with calls are examples of credit spreads.






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






39. 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






40. 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)






41. These options can be exercised on any business dy prior to expiration and the settlement value will be based on the index close that day - settled in the cash equivalent of the amount in-the-money.






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






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






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






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






46. 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






47. 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.






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






49. The purchase or sale of an equal number of puts or calls with the same underlying - stike price - and expiration.






50. 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]