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






2. 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.






3. Opening sale of a security.






4. A strategy involving two or more options of the same type (or options combined with an underlying stock position) that will profit from a rise in the price of the underlying stock. Consists or selling an option with a higher strike - and buying an op






5. 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.






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






7. Long-term equity anticipation securities are calls and puts with expiration's as long as two to three years.






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






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






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






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






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






13. 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)






14. The largest and oldest listed options exchange.






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






16. An option that can be exercised only at expiration. Usually expire the third Friday of every month






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






18. The date an option contract becomes void.






19. 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.






20. Designated primary market maker.






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






22. The date an option contract becomes void.






23. The number of underlying shares covered by one option contract. (100 shares for one equity option)






24. 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






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






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






27. 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.






28. 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)






29. The month during which the expiration date occurs






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






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






32. 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)






33. 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






34. Term used to describe the ownership of a security - contract - or commodity that grants the owner the right to transfer ownership by sale or gift.






35. 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.






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






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






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






39. 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]






40. 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.






41. The combination of a vertical and a calendar spread - wherein the investor buys and sells options of the same class at different expiration dates and different strike prices.






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






43. Commodity trading advisor.






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






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






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






47. An option whose underlying asset is an index.






48. 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.






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






50. 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)