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






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






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






5. 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






6. 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






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






8. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.






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






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. An option strategy in which call options are sold against equivalent amounts of long stock. ( writing 2XYZ Jan 50 calls while owning 200 shares of XYZ stock)






12. 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)






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






14. An option that has intrinsic value






15. 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]






16. 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.






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






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






19. 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.






20. 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.






21. 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.






22. 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.






23. 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).






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






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






26. 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)






27. Evaluating an options value through the use of a pricing model allows one to determine the theoretical value of the option(price you would expect to pay in order to break even)






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






29. 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.






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






31. 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.






32. 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






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






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






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






36. Same as ask price






37. 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






38. The date an option contract becomes void.






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






40. 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.






41. 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.






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






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






44. An option whose underlying asset is an index.






45. Designated primary market maker.






46. 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.






47. 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






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






49. Calculations performed on updated prices.






50. 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.