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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 month during which the expiration date occurs
Cash-settled American index options (cash index)
Expiration month
Time decay
GTC
2. 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
Equity option
Black-Scholes formula
Index
Interest rate risk
3. The instrument (stock - future - or cash index) to be delivered when an option is exercised.
Hedging
Underlying
Horizontal spread
Hedging
4. 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).
Equivalent strategy
Equity option
Synthetics
Bull spread (put)
5. The stock price(s) at which an option strategy results in neither a profit nor a loss.
LEAPS
Cash-settled American index options (cash index)
Break-even point(s)
Long position
6. 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
Neutral spread
Fill-or-kill order (FOK)
Bear spread
Selling short
7. The largest and oldest listed options exchange.
Chicago Board Options Exchange (CBOE)
Premium
Assigned
Neutral
8. A delta-neutral spread composed of more long options than short options on the same underlying instrument. This position generally profits from a large movement in either direction in the underlying instrument.
Bull (or bullish) spread
Expiration cycle
Backspread
Bear market
9. A strategy involving four options of the same type that span three strike prices. The strategy has both limited risk and limited profit potential.
Synthetic long stock
Option
Vertical spread
Butterfly spread
10. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.
Theoretical value (TV)
Synthetic long put
Clearinghouse
Combination
11. Received notification of an assignment by rhw options clearing corporation.
Early exercise
Assigned
Exercise
Bid/bid price
12. An option that can be exercised only at expiration. Usually expire the third Friday of every month
European-style option
Butterfly spread (Call)
reaking
Black-Scholes formula
13. 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.
Equivalent strategy
At-the-money
Theta
Delta
14. An option strategy that is neither bullish nor bearish.
Strangle
Neutral
Volatility
Neutral strategy
15. Interest rate at which brokerage firms borrow from banks to finance their clients' security positions. The call loan rate is sometimes used because the loans can be called on a 24-hour notice.
Broker loan rate
Bear market
Option
Condor spread
16. Commodity trading advisor.
European-style option
CTA
Condor spread
Time value
17. 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.
Intrinsic value
Bear spread
Cash-settled American index options (cash index)
Time spread/Calendar spread/Horizontal spread
18. The sensitivity of an option's delta at a given moment in time. It is the change in delta with respect to a 1-point change in the underlying. Examplee (let's say a call option with a 100 strike price has a 50 delta. If the underlying moves from 100 t
Gamma
Theta
Bid/bid price
Covered call/Covered call writing
19. 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.
Bear spread
At-the-money
Arbitrage
Collar
20. A long stock position and a short call position.
In-the-money option (ITM)
Hedge/Hedged position
Bid/bid price
Synthetic short put
21. The time of day by which all exercise notices must be received on the expiration date.
Gamma
Expiration time
Condor spread
Contract size
22. Charge levied for the privilege ofborrowing money
Interest
CTA
Bear market
Iron butterfly
23. Good Til Cancel
Bear spread
Time value
GTC
Leverage
24. The month during which the expiration date occurs
Chicago Board Options Exchange (CBOE)
Expiration month
Bull spread (put)
Option
25. 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.
Combination
Indexing
Assignment
FOK
26. 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.
Condor spread
Extrinsic value
Future
Assignment
27. The part of an options total price that exceeds its intrinsic value. Price of an out-of-money option consists entirely of time value.
Ask/ask price
Volatility
Automatic exercise
Time value
28. 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).
Reverse conversion
Hedge/Hedged position
Expiration
Bull (or bullish) spread
29. 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.
Bear spread (put)
Assignment
Arbitrage
In-the-money option (ITM)
30. 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
Theta
Break-even point(s)
Short stock position
Conversion
31. 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.
Combination
Expiration date
Vertical spread
Cash-settled American index options (cash index)
32. A four-sided option spread that involves a long call and a short put at one strike price as well as a short call and a long put at another strike price. (buying 1 LMN Jan 50 call - and writing 1 LMN Jan 55 call; simultaneously buying 1 LMN Jan 55 put
Bull
Box spread
Future
Put-call ratio
33. At the money
FOK
Contract size
ATM
Synthetic long put
34. The simultaneous purchase and sale of options of the same class at different strike prices - but with the same expiration date. (ABC April 150/155 call spread. you purchase the ABC Apr 150 call and sell the ABC Apr 155 call). similar to the outright
Vertical spread
Analytics
Expiration date
Short
35. A short call position and a long put position.
Synthetic short stock
Credit spread
Interest rate risk
Pin risk
36. Calculations performed on updated prices.
Neutral
LEAPS
Bear spread (call)
Analytics
37. 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
Expiration time
Hedge/Hedged position
Iron butterfly
Future
38. A spread in which the difference in the long and short options premiums results in a net debit.
Future
Covered call/Covered call writing
Indexing
Debit spread
39. 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.
Hedging
reaking
Hedge/Hedged position
Diagonal spread
40. A contract between a buyer and seller whereby the buyer acquires the right - but not the obligation - to buy a specified underlying instrument at a fixed price on or before a specified date.
Cash-settled American index options (cash index)
Neutral strategy
Call Option
Indexing
41. A long stock position and a long put position.
Bear spread (call)
Broker loan rate
Synthetic Long call
Uncovered option/Naked option
42. 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)
Time decay
Bull spread (call)
All-or-none order (AON)
Carry/Carrying charge
43. 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.
Clearinghouse
Exercise
Analytics
Adjusted Option
44. An agent who facilitates trades between a buyer and a seller and receives a commission for services.
Index
Automatic exercise
Straddle
Broker/Dealer
45. An option strategy that is neither bullish nor bearish.
Break-even point(s)
Synthetics
Neutral strategy
All-or-none order (AON)
46. 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
Carry/Carrying charge
ATM
47. 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)
Covered call/Covered call writing
American-style options
Pin risk
Delta
48. 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.
Condor spread
Vertical spread
Synthetics
Volatility
49. 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
Class of options
Condor spread
Bull (or bullish) spread
Future
50. A graphical representation of the estimated theoretical value of an option at one point in time - at various prices of the underlying stock.
Option writer
Options pricing curve
Series of options
Chicago Board Options Exchange (CBOE)