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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. A prolonged period of falling prices. A bear market in stocks is usually brought on by the anticipation of declining economic activity.
Call Option
Horizontal spread
Bear market
Market on close (MOC)
2. 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).
Break-even point(s)
AON
Hedge/Hedged position
Leverage
3. Fill-or-kill order
Credit spread
Investment
Bear
FOK
4. 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
Long position
Butterfly spread
Collar
Vertical spread
5. A credit spread in which a rise in price of the underlying security will theoretically increase the profit value of the spread. (writing 1 XYZ Jan 55 put and buying 1 XYZ Jan 50 put)
FOK
Time decay
Volatility
Bull spread (put)
6. Another name for calendar spread.
Horizontal spread
Bull (or bullish) spread
Time decay
Delta
7. 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.
Combination
Hedge/Hedged position
Put-call ratio
Bull spread (call)
8. An option on shares of an individual common stock.
Extrinsic value
Diagonal spread
Last trading day
Equity option
9. A graphical representation of the estimated theoretical value of an option at one point in time - at various prices of the underlying stock.
Options pricing curve
Index
FOK
Index option
10. A a feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.
Combination
Conversion
Offer price
Early exercise
11. The stock price(s) at which an option strategy results in neither a profit nor a loss.
Bull (or bullish) spread
Iron butterfly
Fill-or-kill order (FOK)
Break-even point(s)
12. An order that is designated to be executed on or before the expiration date.
Reverse conversion
Interest rate risk
Black-Scholes formula
All-or-none order (AON)
13. Options contracts on the same class having the same strike price and expiration month. (all XYZ May 60 calls constitue a series.
Delta
Covered option
Future
Series of options
14. 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)
All-or-none order (AON)
Expiration date
Reverse conversion
Options pricing model
15. 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.
Index
Time spread/Calendar spread/Horizontal spread
Synthetics
AON
16. 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
Break-even point(s)
Fences
Iron butterfly
Carry/Carrying charge
17. 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
Rho
Bear
Credit spread
18. A measure of actual stock price changes over a specific period of time.
Expiration
Historic volatility
Implied volatility
Neutral
19. A position that will perform best if there is little or no net change in the price of the underlying stock.
Collar
Neutral spread
In-the-money option (ITM)
Volatility
20. 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)
Adjusted Option
Bear spread (put)
Gamma
AON
21. 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.
Break-even point(s)
Bull spread (call)
Class of options
Time decay
22. Another name for calendar spread.
Neutral spread
Collar
Leverage
Horizontal spread
23. 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.
Expiration cycle
FOK
Rho
Covered option
24. An individual with the opinion that a security - or the market in general will decline in price; someone having a negative or pessimistic outlook.
Bear
Delta
Synthetic short put
Synthetic short stock
25. A short stock position and a short put position.
Synthetic short call
Covered option
Conversion
Fences
26. 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).
Diagonal spread
Hedge/Hedged position
Rho
Bull spread (call)
27. 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
All-or-none order (AON)
Option writer
Neutral spread
Fences
28. 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.
Spread
CTA
At-the-money
Black-Scholes formula
29. The number of underlying shares covered by one option contract. (100 shares for one equity option)
Contract size
Investment
Bull spread (call)
Volatility
30. Charge levied for the privilege ofborrowing money
Chicago Board Options Exchange (CBOE)
Interest
Diagonal spread
Adjusted Option
31. The total number of outstanding option contracts in a given series
Index
Investment
Open interest
Fill-or-kill order (FOK)
32. 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.
Cash-settled American index options (cash index)
Delta
Out-of-the-money (OTM)
LEAPS
33. 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
Class of options
Reverse conversion
Synthetic short stock
34. 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)
Leverage
DPM
Hedge/Hedged position
35. A short stock position and a long call position.
Conversion
Synthetic long put
Calendar spread
Time spread/Calendar spread/Horizontal spread
36. 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)
Adjusted Option
Uncovered option/Naked option
Bear spread (put)
Bull
37. 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.
Backspread
Credit spread
American-style options
Option
38. 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.
Cash-settled American index options (cash index)
Chicago Board Options Exchange (CBOE)
All-or-none order (AON)
Broker loan rate
39. 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
Delta
Out-of-the-money (OTM)
Long position
40. A term describing one side of a spread position. A trader who legs into a spread establishes one side first - hoping for a favorable price movement so the other side can be executed at a better price.
Leg
Condor spread
Time spread/Calendar spread/Horizontal spread
Fences
41. A measure of the volatility of the underlying security - derived by applying current prices rather than historical prices.
Spread
Neutral strategy
Strangle
Implied volatility
42. The month during which the expiration date occurs
Expiration month
Diagonal spread
Cash-settled American index options (cash index)
ATM
43. Calculations performed on updated prices.
Debit spread
Analytics
Reverse conversion
Covered call/Covered call writing
44. A long put butterfly is established by buying one put at the lowest strike price - writing two puts at the middle strike price - and buying one put at the highest strike price.
LEAPS
Butterfly spead (Put)
Future
Covered option
45. 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
Bid/bid price
Interest
Options pricing model
46. The seller of an option contract Who is obligated to meet the terms of delivery if the option is exercised.
Bear
Option writer
Break-even point(s)
Vega
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
Arbitrage
Uncovered option/Naked option
GTC
Fences
48. 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)
Strangle
Spread
Pin risk
Series of options
49. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.
Short
Bear spread (call)
Option Chain
Strangle
50. Constructin a portfolio to match the performance of a broad-based index - such as the S&P 500. Individuals can do this by purchasing shares in an index mutual fund.
Market on close (MOC)
Selling short
Indexing
Delta