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Test your basic knowledge |
Options Trading
Start Test
Study First
Subjects
:
industries
,
business-skills
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. Commodity trading advisor.
Vega
Premium
Class of options
CTA
2. The month during which the expiration date occurs
Interest rate risk
Expiration month
Investment
Bear spread
3. 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.
DPM
Hedging
Break-even point(s)
At-the-money
4. The number of underlying shares covered by one option contract. (100 shares for one equity option)
Contract size
Selling short
In-the-money option (ITM)
Condor spread
5. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.
Ratio write
Theta
Synthetic Long call
Bull
6. An option that has intrinsic value
Short
Gamma
Index
In-the-money option (ITM)
7. An option that can be exercised only at expiration. Usually expire the third Friday of every month
European-style option
Underlying
Intrinsic value
Short stock position
8. 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.
Bull
Covered option
Debit spread
Gamma
9. Opening sale of a security.
Synthetic short call
Leverage
Hedging
Selling short
10. 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.
Leg
Debit spread
LEAPS
Arbitrage
11. Procedure used by the options clearing corporation to exercise in-the-money options at expiration. (75 cents or more)
DPM
Clearinghouse
Automatic exercise
Neutral spread
12. 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
Ratio write
Short
Interest rate risk
Gamma
13. Good Til Cancel
Implied volatility
GTC
Neutral spread
Premium
14. 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)
Arbitrage
Rho
Cash-settled American index options (cash index)
Bear spread (call)
15. 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.
Credit spread
Early exercise
Black-Scholes formula
Calendar spread
16. Commodity trading advisor.
Option writer
Gamma
CTA
Bull spread (call)
17. The simultaneous purchase and sale of options of the same class (call or put - having same underlying) at the same strike prices - but with different expiration dates - selling the short-term option and buying the long-term option.
Calendar spread
Bear market
Interest rate risk
Exercise
18. A list of the options available for the underlying stock symbols in which you are interested.
Broker/Dealer
Contract size
Option Chain
Time decay
19. An order to buy or sell a security that will remain in effect until the order is executed or canceled
Good til cancel (GTC) order
Broker loan rate
LEAPS
Short stock position
20. 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
Call Option
Expiration cycle
Conversion
Time value
21. An option strategy with limited risk and limited profit potential that involves both a long(or short) straddle - and a short (or long) strangle. (short strangle: buying 1 ABC May 90 call and 1 ABC May 90 put - and writing 1 ABC May 95 call and writin
At-the-money
Covered option
Call Option
Iron butterfly
22. 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).
Interest rate risk
Selling short
Equivalent strategy
Neutral
23. 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
Diagonal spread
Butterfly spread (Call)
Intrinsic value
Class of options
24. 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
Interest rate risk
Broker/Dealer
Bear spread (put)
Future
25. A term referring to all options of the same type- either calls or puts- having the same underlying instrument.
Early exercise
Volatility
Horizontal spread
Class of options
26. 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
Conversion
Covered call/Covered call writing
Expiration cycle
Expiration date
27. A market drop in the price of a security
reaking
Bull
Out-of-the-money (OTM)
Assignment
28. 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
Option
Short stock position
Time value
Index option
29. The lowest price at which a dealer or trader is willing to sell a tradable instrument at a particular time.
Fill-or-kill order (FOK)
Index
Indexing
Ask/ask price
30. At the money
Vega
ATM
Long position
Pin risk
31. Term used to describe how the theoretical value of an option 'erodes' or reduces with the passage of time. Time decay is specifically quantified by Theta.
Investment
Assigned
Calendar spread
Time decay
32. A term referring to all options of the same type- either calls or puts- having the same underlying instrument.
Class of options
Bull (or bullish) spread
Backspread
Extrinsic value
33. A a feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.
Collar
Expiration time
Early exercise
Cash-settled American index options (cash index)
34. 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)
Future
Bid/bid price
Chicago Board Options Exchange (CBOE)
Bear spread (put)
35. 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).
Spread
Bear spread (call)
Equivalent strategy
Leg
36. 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.
Synthetics
Collar
Bear
Long position
37. The sensitivity of an options theoretical value to a change in implied volatility.
Vega
Offer price
Equity option
Automatic exercise
38. Third Friday of expiration month
Carry/Carrying charge
Fences
Last trading day
Time decay
39. The use of money to create more money through an appreciating or income-producing asset.
Investment
Gamma
Adjusted Option
Clearinghouse
40. A short stock position and a short put position.
Synthetic short call
LEAPS
FOK
Expiration time
41. 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)
Bull spread (call)
Index
American-style options
Vega
42. 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.
Credit spread
Black-Scholes formula
Interest
Time spread/Calendar spread/Horizontal spread
43. The total price of an option: intrinsic value plus extrinsic value
Straddle
Bid/bid price
Strike price
Premium
44. Charge levied for the privilege ofborrowing money
Backspread
Time value
Black-Scholes formula
Interest
45. 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.
FOK
Synthetic long put
Rho
Debit spread
46. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.
Option
Hedging
Butterfly spread
Clearinghouse
47. A spread in which the difference in the long and short options premiums results in a net debit.
Strangle
Interest rate risk
Debit spread
Expiration time
48. 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.
Index
Neutral strategy
Carry/Carrying charge
Cash-settled American index options (cash index)
49. A type of order that requires that the order be executed completely or not at all.
Debit spread
DPM
Fill-or-kill order (FOK)
Butterfly spead (Put)
50. The purchase or sale of an equal number of puts or calls with the same underlying - stike price - and expiration.
Exercise
Synthetic short put
Intrinsic value
Straddle