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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. 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
Extrinsic value
Backspread
AON
2. 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.
Option writer
Extrinsic value
Synthetic long put
Uncovered option/Naked option
3. Another name for calendar spread.
Pin risk
Horizontal spread
Covered option
Implied volatility
4. An order to buy or sell at the last price on the close.
Neutral
Delta
Market on close (MOC)
FOK
5. 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
Bid/bid price
Pin risk
Ratio write
Condor spread
6. A position resulting from the sale of a contract or instrument that you do not own.
Call Option
Carry/Carrying charge
Short
Index option
7. 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)
Future
Assigned
Fill-or-kill order (FOK)
Covered call/Covered call writing
8. An option that has no intrinsic value.
Out-of-the-money (OTM)
Bid/bid price
Intrinsic value
Hedging
9. A measure of actual stock price changes over a specific period of time.
Index option
Historic volatility
Diagonal spread
Underlying
10. A short call position and a long put position.
Synthetic short stock
Volatility
Broker/Dealer
Bull spread (put)
11. The interest expense on money borrowed to finance a margined securities position.
Option writer
Underlying
Carry/Carrying charge
Call Option
12. A position that will perform best if there is little or no net change in the price of the underlying stock.
Neutral spread
In-the-money option (ITM)
Break-even point(s)
Broker loan rate
13. 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
Bull (or bullish) spread
Indexing
Contract size
Good til cancel (GTC) order
14. 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
At-the-money
Calendar spread
Synthetic short put
Conversion
15. 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.
Arbitrage
Intrinsic value
Butterfly spread (Call)
Combination
16. Long-term equity anticipation securities are calls and puts with expiration's as long as two to three years.
Option writer
At-the-money
LEAPS
Butterfly spread (Call)
17. The process by which the seller of an option is notified of the buyer's intention to exercise that option.
Butterfly spead (Put)
Arbitrage
Assignment
Synthetic Long call
18. 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
Synthetic short stock
Expiration cycle
CTA
Option writer
19. 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
At-the-money
Bull (or bullish) spread
Bear market
Option Chain
20. The interest expense on money borrowed to finance a margined securities position.
Carry/Carrying charge
Horizontal spread
In-the-money option (ITM)
Theta
21. 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
Rho
Neutral strategy
Collar
Interest rate risk
22. A measure of the volatility of the underlying security - derived by applying current prices rather than historical prices.
Vega
Bull
Out-of-the-money (OTM)
Implied volatility
23. A contract to buy or sell a predetermined Quantity of a commodity or financial product for a specific price on a given date.
Neutral
Delta
Broker/Dealer
Future
24. 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.
Expiration cycle
Volatility
Short stock position
Adjusted Option
25. 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.
Debit spread
Premium
Credit spread
Delta
26. Options contracts on the same class having the same strike price and expiration month. (all XYZ May 60 calls constitue a series.
Series of options
Bear
Synthetic short stock
Delta
27. 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.
Cash-settled American index options (cash index)
Ratio write
Fill-or-kill order (FOK)
Premium
28. 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.
American-style options
Exercise
Covered option
Debit spread
29. 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
Expiration cycle
Hedge/Hedged position
Assigned
Neutral strategy
30. A compilation of the prices of several common entities into a single number; ex (S&P 100 Index).
Expiration month
Index
Ask/ask price
Selling short
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.
Strangle
Time decay
Credit spread
Class of options
32. The number of underlying shares covered by one option contract. (100 shares for one equity option)
Options pricing model
Contract size
Clearinghouse
Time decay
33. The estimated value of an option derived from a mathematical model.
Short
AON
Theoretical value (TV)
Break-even point(s)
34. The month during which the expiration date occurs
Expiration month
Expiration date
Option writer
Fences
35. A graphical representation of the estimated theoretical value of an option at one point in time - at various prices of the underlying stock.
Hedging
Synthetic long stock
Gamma
Options pricing curve
36. 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.
Strike price
Diagonal spread
Ratio write
Butterfly spread (Call)
37. 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)
Options pricing model
Historic volatility
Premium
Vega
38. 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.
Contract size
Broker/Dealer
Expiration date
Selling short
39. A prolonged period of falling prices. A bear market in stocks is usually brought on by the anticipation of declining economic activity.
Fill-or-kill order (FOK)
Bear market
Credit spread
Short
40. A strategy consisting of at least two components transacted simultaneously. The price relationship between each part - or 'leg -' could change based on a move in underlying price and or volatility. A spread is entered into with the expectation of eit
All-or-none order (AON)
Spread
Options pricing curve
Bear
41. Good Til Cancel
GTC
Credit spread
Cash-settled American index options (cash index)
AON
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.
Black-Scholes formula
Collar
Bull spread (put)
Neutral strategy
43. A short stock position and a short put position.
Synthetic short call
Synthetic long stock
Assigned
Box spread
44. 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
Iron butterfly
Condor spread
Bid/bid price
Index option
45. An order that is designated to be executed on or before the expiration date.
Diagonal spread
Arbitrage
Expiration time
All-or-none order (AON)
46. An option that can be exercised only at expiration. Usually expire the third Friday of every month
European-style option
Fill-or-kill order (FOK)
Automatic exercise
Index option
47. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.
Expiration cycle
Clearinghouse
Premium
Backspread
48. 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
Expiration cycle
Intrinsic value
Covered call/Covered call writing
49. Commodity trading advisor.
Combination
Butterfly spread
Fences
CTA
50. 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.
FOK
Put-call ratio
Edge
European-style option