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






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






3. A strategy involving four options of the same type that span three strike prices. The strategy has both limited risk and limited profit potential.






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






5. 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






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






7. The sensitivity (rate of change) of an option's theoretical value (assessed value) for a one dollar change in price of the underlying instrument. Expressed as a percentage - it represents an equivalent amount of underlying at a given moment in time.






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






9. A contract that gives the owner the right - if exercised - to buy or sell a security at a specific price within a specific time limit.






10. 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.






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






12. The largest and oldest listed options exchange.






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






14. 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.






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






16. Same as ask price






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






18. 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.






19. A short stock position and a short put position.






20. 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.






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






22. 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)






23. 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.






24. Same as ask price






25. A contract that gives the owner the right - if exercised - to buy or sell a security at a specific price within a specific time limit.






26. 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.






27. 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






28. 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.






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






30. 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.






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






32. 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)






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






34. 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)






35. 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






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






37. 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.






38. An option that has intrinsic value






39. 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.






40. A long put butterfly is established by buying one put at the lowest strike price - writing two puts at the middle strike price - and buying one put at the highest strike price.






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






42. 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.






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






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






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






46. An option whose underlying asset is an index.






47. 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






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






49. At the money






50. Commodity trading advisor.