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Options Trading
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industries
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business-skills
Instructions:
Answer 50 questions in 15 minutes.
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study here
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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. 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.
Time decay
Offer price
Volatility
Historic volatility
2. 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
Put-call ratio
Butterfly spread (Call)
Neutral
Hedge/Hedged position
3. Another name for calendar spread.
Historic volatility
Condor spread
Horizontal spread
AON
4. An option position that involves the purchase/sale of a call and the sale (purchase of a put on the same underlying strike with the same expiration. Can also be referred to as any set of multiple purchases and sales of options.
Options pricing model
Combination
Bear spread (call)
American-style options
5. An option strategy that is neither bullish nor bearish.
Box spread
Neutral strategy
Edge
Bear spread (put)
6. 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
Fill-or-kill order (FOK)
Conversion
Butterfly spread (Call)
ATM
7. The sensitivity of theoretical option prices with regard to small changes in time. Theta measures the rate of decay in the time value of options.
Theta
Assignment
Equity option
All-or-none order (AON)
8. A short stock position and a short put position.
Investment
Iron butterfly
Bear spread (put)
Synthetic short call
9. The time of day by which all exercise notices must be received on the expiration date.
Volatility
Interest
Expiration time
Exercise
10. Commodity trading advisor.
Intrinsic value
CTA
LEAPS
Long position
11. 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.
Index
Interest
Edge
Rho
12. 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.
Index option
Edge
Uncovered option/Naked option
Leverage
13. An order that is designated to be executed on or before the expiration date. (all or none)
Leverage
All-or-none order (AON)
AON
Short
14. An agent who facilitates trades between a buyer and a seller and receives a commission for services.
Broker/Dealer
Assigned
Ratio write
All-or-none order (AON)
15. A term referring to all options of the same type- either calls or puts- having the same underlying instrument.
American-style options
Assigned
Class of options
AON
16. An option whose exercise price is equal to the current market price of the underlying security. An ATM option may or may not have intrinsic value.
At-the-money
Calendar spread
Covered call/Covered call writing
Backspread
17. The use of money to create more money through an appreciating or income-producing asset.
Series of options
Collar
Synthetic long stock
Investment
18. 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)
Underlying
Options pricing model
Bull
Neutral
19. 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.
Covered call/Covered call writing
Debit spread
Option writer
Exercise
20. 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
Condor spread
Intrinsic value
Bid/bid price
DPM
21. A position resulting from the sale of a contract or instrument that you do not own.
Time decay
Horizontal spread
Broker loan rate
Short
22. An adjective describing the belief that a stock or the market in general will neither rise nor decline significantly.
Class of options
Neutral
Expiration time
Selling short
23. An option position that involves the purchase/sale of a call and the sale (purchase of a put on the same underlying strike with the same expiration. Can also be referred to as any set of multiple purchases and sales of options.
Combination
Straddle
Fences
Leg
24. A short stock position and a short put position.
Class of options
Calendar spread
Synthetic short call
Butterfly spead (Put)
25. A measure of actual stock price changes over a specific period of time.
Indexing
Historic volatility
Analytics
Hedge/Hedged position
26. 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
Condor spread
Butterfly spead (Put)
Bull spread (put)
Vega
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
European-style option
Uncovered option/Naked option
Exercise
Offer price
28. 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.
Option
Edge
Out-of-the-money (OTM)
Class of options
29. The time of day by which all exercise notices must be received on the expiration date.
Historic volatility
Straddle
Interest
Expiration time
30. Designated primary market maker.
Expiration month
LEAPS
DPM
Expiration
31. The lowest price at which a dealer or trader is willing to sell a tradable instrument at a particular time.
Box spread
Class of options
CTA
Ask/ask price
32. An option that can be exercised only at expiration. Usually expire the third Friday of every month
European-style option
Carry/Carrying charge
Last trading day
Gamma
33. 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.
Extrinsic value
Debit spread
Bear spread (put)
Put-call ratio
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.
Covered option
Horizontal spread
Last trading day
Edge
35. Calculations performed on updated prices.
Analytics
Last trading day
Neutral
Bear spread (call)
36. 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
Hedging
Exercise
Interest rate risk
American-style options
37. The highest price a dealer is willing to pay for a security at a particular time.
Calendar spread
Bid/bid price
Credit spread
Options pricing curve
38. 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
Time spread/Calendar spread/Horizontal spread
Ratio write
Iron butterfly
Collar
39. A short call position and a long put position.
Synthetic short stock
Out-of-the-money (OTM)
Box spread
Strangle
40. 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
Condor spread
Horizontal spread
Synthetics
Expiration cycle
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.
Arbitrage
Covered option
Expiration date
Volatility
42. 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)
Early exercise
In-the-money option (ITM)
Equivalent strategy
Covered call/Covered call writing
43. The interest expense on money borrowed to finance a margined securities position.
Cash-settled American index options (cash index)
Uncovered option/Naked option
Butterfly spead (Put)
Carry/Carrying charge
44. The estimated value of an option derived from a mathematical model.
Theoretical value (TV)
Index option
Ask/ask price
CTA
45. An order that is designated to be executed on or before the expiration date.
Good til cancel (GTC) order
Neutral spread
All-or-none order (AON)
Calendar spread
46. A graphical representation of the estimated theoretical value of an option at one point in time - at various prices of the underlying stock.
Series of options
Equity option
Leverage
Options pricing curve
47. Amount by which an option is ITM.
Intrinsic value
Calendar spread
Volatility
AON
48. 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
Synthetic short put
Selling short
Early exercise
Bear spread
49. A contract to buy or sell a predetermined Quantity of a commodity or financial product for a specific price on a given date.
Broker/Dealer
Options pricing curve
Future
Interest
50. The number of underlying shares covered by one option contract. (100 shares for one equity option)
Contract size
Expiration
DPM
Analytics
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