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 option that has no intrinsic value.






2. An option that has intrinsic value






3. Charge levied for the privilege ofborrowing money






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






5. 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






6. 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.






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






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






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






10. The month during which the expiration date occurs






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






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






13. The estimated value of an option derived from a mathematical model.






14. 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.






15. A strategy that profits from a stock price decline. It is initiated by borrowing stock from a broker -dealer and selling it in the open market. This strategy is closed (covered) at a later date by buying back the stock and turning it to the lending b






16. Investment strategy that has a similar risk/reward profile as another investment strategy. (a long May 60-65 call vertical spread is equivalent to a short May 60-65 put vertical spread).






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






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






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






20. 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.






21. 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.






22. The month during which the expiration date occurs






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






24. The estimated value of an option derived from a mathematical model.






25. 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.






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






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






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






29. 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.






30. 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.






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






32. 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.






33. Charge levied for the privilege ofborrowing money






34. An open short option position that is offset by a corresponding stock position on a share-for-share basis. This ensures that if the owner of the option exercises - the writer of the option will not have a problem fulfilling the delivery requirements.






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






36. 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






37. An option whose underlying asset is an index.






38. Investment strategy that has a similar risk/reward profile as another investment strategy. (a long May 60-65 call vertical spread is equivalent to a short May 60-65 put vertical spread).






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






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






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






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






43. A strategy involving two or more options of the same type that will profit from a decline in the underlying stock. Consists of buying an option with a higher strike and selling an option with a lower strike. The maximum risk will be realized if the u






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






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






46. 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






47. 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






48. 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.






49. Amount by which an option is ITM.






50. 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