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. Good Til Cancel






2. 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






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






4. Designated primary market maker.






5. 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)






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






7. An option whose underlying asset is an index.






8. 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)






9. Third Friday of expiration month






10. 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)






11. An option that has intrinsic value






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






13. 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.






14. 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.






15. An option that has no intrinsic value.






16. 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).






17. Process by which the holder of an option notifies the seller of intention to take delivery of the underlying in the case of a call - or make delivery in the case of a put - at the specified exercise price.






18. An agent who facilitates trades between a buyer and a seller and receives a commission for services.






19. Opening sale of a security.






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






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






22. 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






23. 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.






24. 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






25. 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.






26. Designated primary market maker.






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






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






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






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






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






32. An order that is designated to be executed on or before the expiration date. (all or none)






33. Same as ask price






34. 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.






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






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






37. 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.






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






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






40. 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)






41. 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)






42. 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






43. 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






44. 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.






45. The date an option contract becomes void.






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






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






48. 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)






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






50. 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.