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. 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.






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






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






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






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






6. 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.






7. 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.






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






9. At the money






10. 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]






11. 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.






12. Calculations performed on updated prices.






13. The month during which the expiration date occurs






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






15. 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






16. 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






17. 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.






18. Opening sale of a security.






19. 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.






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






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






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






23. An option whose underlying asset is an index.






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






25. 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.






26. An individual with the opinion that a security - or the market in general will decline in price; someone having a negative or pessimistic outlook.






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






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






29. 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.






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






31. Third Friday of expiration month






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






33. 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.






34. Term used to describe how the theoretical value of an option 'erodes' or reduces with the passage of time. Time decay is specifically quantified by Theta.






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






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






37. 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)






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






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






40. 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.






41. An option that has intrinsic value






42. The simultaneous purchase and sale of options of the same class at different strike prices - but with the same expiration date. (ABC April 150/155 call spread. you purchase the ABC Apr 150 call and sell the ABC Apr 155 call). similar to the outright






43. 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)






44. An investment strategy used by professional option traders in which a short put and long call with the same strike price and expiration are combined with short stock to lock in a price. (selling short 100 shares of XYZ stock - buying 1 XYZ May 60 cal






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






46. 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






47. 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.






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






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






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