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 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






2. 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.






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






4. 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.






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






6. 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






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






8. 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).






9. 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






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






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






12. An option that has intrinsic value






13. An option created as the result of a special event such as a stock split - stock dividend - merger or spin-off taking place during the life of an option. ( adjusted option may cover more than the usual one hundred shares)






14. 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






15. 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






16. 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)






17. 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.






18. A contract between a buyer and seller whereby the buyer acquires the right - but not the obligation - to buy a specified underlying instrument at a fixed price on or before a specified date.






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






20. 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).






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






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






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






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






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






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






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






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






31. 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.






32. 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.






33. 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)






34. 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






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






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






37. 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






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






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






40. 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






41. 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.






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






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






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






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






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






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






48. 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.






49. A contract between a buyer and seller whereby the buyer acquires the right - but not the obligation - to buy a specified underlying instrument at a fixed price on or before a specified date.






50. An option that has no intrinsic value.