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. An investment strategy in which a long put and a short call with the same strike price and expiration are combined with long stock to lock in a nearly risk-less profit. (by purchasing 100 shares of XYZ stock at 50 - writing 1 XYZ Jan 50 call - and bu






2. 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.






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






4. Fill-or-kill order






5. A market drop in the price of a security






6. 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






7. Fill-or-kill order






8. An option that has intrinsic value






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






10. 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






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






12. 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.






13. Third Friday of expiration month






14. 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.






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






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






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






18. 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)






19. The largest and oldest listed options exchange.






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






21. The risk that a change in the interest rates will negatively affect the value of an investor's holdings; generally associated with bonds - but applying to all investments






22. 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)






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






24. 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






25. 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






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






27. 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)






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






29. At the money






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






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






32. 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.






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






34. 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)






35. The price that an owner of an option can purchase (call) or sell (put) the underlying stock.






36. Opening sale of a security.






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






38. Same as ask price






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






40. Designated primary market maker.






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






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






43. Commodity trading advisor.






44. 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






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






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






47. Designated primary market maker.






48. Calculations performed on updated prices.






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






50. 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.