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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. 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
Index
Adjusted Option
Adjusted Option
Reverse conversion
2. Received notification of an assignment by rhw options clearing corporation.
All-or-none order (AON)
Delta
Assigned
Hedging
3. Procedure used by the options clearing corporation to exercise in-the-money options at expiration. (75 cents or more)
Backspread
Neutral
Bull spread (put)
Automatic exercise
4. The date an option contract becomes void.
Expiration
Option writer
Conversion
Selling short
5. 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)
Future
Pin risk
Bull
Synthetic Long call
6. The time of day by which all exercise notices must be received on the expiration date.
Synthetic short call
Underlying
Extrinsic value
Expiration time
7. An option that has intrinsic value
Horizontal spread
In-the-money option (ITM)
Offer price
Delta
8. Procedure used by the options clearing corporation to exercise in-the-money options at expiration. (75 cents or more)
Synthetic short put
Automatic exercise
Bull (or bullish) spread
Theta
9. The time of day by which all exercise notices must be received on the expiration date.
Diagonal spread
Expiration time
Bear
Automatic exercise
10. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.
Ask/ask price
Last trading day
Bull
Interest rate risk
11. A short stock position and a short put position.
Reverse conversion
Long position
Strangle
Synthetic short call
12. 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.
Bear market
Implied volatility
Hedging
Call Option
13. The process by which the seller of an option is notified of the buyer's intention to exercise that option.
Bull
Assignment
Strike price
Expiration time
14. A contract to buy or sell a predetermined Quantity of a commodity or financial product for a specific price on a given date.
Fill-or-kill order (FOK)
Future
Bear market
In-the-money option (ITM)
15. Another name for calendar spread.
Delta
Option Chain
Synthetic long put
Horizontal spread
16. 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.
Bull spread (put)
Out-of-the-money (OTM)
Expiration date
Volatility
17. 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.
Clearinghouse
Expiration cycle
Diagonal spread
Implied volatility
18. A long call position and a short put position.
Gamma
Covered call/Covered call writing
Synthetic long stock
CTA
19. 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.
Pin risk
Extrinsic value
Hedge/Hedged position
Indexing
20. A graphical representation of the estimated theoretical value of an option at one point in time - at various prices of the underlying stock.
Bull spread (call)
Combination
Options pricing curve
Credit spread
21. A spread in which the difference in the long and short options premiums results in a net debit.
Underlying
Long position
Options pricing curve
Debit spread
22. A strategy involving four options of the same type that span three strike prices. The strategy has both limited risk and limited profit potential.
Box spread
Diagonal spread
Butterfly spread
Strike price
23. The use of money to create more money through an appreciating or income-producing asset.
Broker/Dealer
Expiration cycle
Investment
Delta
24. 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.
Indexing
Uncovered option/Naked option
Time decay
Premium
25. Options that may be exercised on or before the expiration date.
Market on close (MOC)
Bull (or bullish) spread
American-style options
Long position
26. The total number of outstanding option contracts in a given series
Synthetic short call
Theta
Open interest
Carry/Carrying charge
27. Commodity trading advisor.
Bull
Market on close (MOC)
Call Option
CTA
28. The month during which the expiration date occurs
Indexing
Expiration month
Synthetics
Ask/ask price
29. 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.
Synthetic short put
Time decay
Expiration time
Synthetic Long call
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.
Exercise
Synthetic short call
Good til cancel (GTC) order
Delta
31. A strategy involving two or more options of the same type (or options combined with an underlying stock position) that will profit from a rise in the price of the underlying stock. Consists or selling an option with a higher strike - and buying an op
Carry/Carrying charge
Bear spread
Assignment
Bull (or bullish) spread
32. A means of increasing return or worth without increasing investment.
Assignment
Diagonal spread
Theoretical value (TV)
Leverage
33. A person who believes that a security - or the market in general - will rise in price; a positive or optimistic outlook.
Bull
Indexing
Gamma
Butterfly spread
34. The highest price a dealer is willing to pay for a security at a particular time.
Edge
Synthetic Long call
At-the-money
Bid/bid price
35. 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
Uncovered option/Naked option
Bear spread (put)
Covered call/Covered call writing
Index
36. A position that will perform best if there is little or no net change in the price of the underlying stock.
Equity option
Fill-or-kill order (FOK)
Uncovered option/Naked option
Neutral spread
37. The highest price a dealer is willing to pay for a security at a particular time.
Implied volatility
Time decay
Box spread
Bid/bid price
38. 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
Market on close (MOC)
LEAPS
Equivalent strategy
39. 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
Fences
Equivalent strategy
Neutral spread
DPM
40. A short stock position and a long call position.
Synthetic long put
Gamma
Adjusted Option
Index option
41. The part of an options total price that exceeds its intrinsic value. Price of an out-of-money option consists entirely of time value.
Time value
Theoretical value (TV)
Box spread
Short
42. The date on which an option and the right to exercise it cease to exist. Listed stock options expire the Saturday following the third Friday of every month.
Bear market
Expiration date
GTC
Butterfly spread (Call)
43. 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.
Ask/ask price
Butterfly spread (Call)
Black-Scholes formula
Bull (or bullish) spread
44. 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.
FOK
Long position
Synthetic Long call
Contract size
45. 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)
Expiration
Options pricing model
Adjusted Option
Short stock position
46. 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.
Carry/Carrying charge
Last trading day
Exercise
Open interest
47. Options contracts on the same class having the same strike price and expiration month. (all XYZ May 60 calls constitue a series.
All-or-none order (AON)
Bear spread
Series of options
Pin risk
48. A contract to buy or sell a predetermined Quantity of a commodity or financial product for a specific price on a given date.
Option
Interest rate risk
Indexing
Future
49. Received notification of an assignment by rhw options clearing corporation.
Hedging
Strike price
Expiration date
Assigned
50. 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)
Bear spread (call)
Expiration month
Combination
Bull spread (call)