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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 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
Time decay
Strike price
Assignment
2. The instrument (stock - future - or cash index) to be delivered when an option is exercised.
Underlying
Synthetic Long call
Straddle
Index option
3. 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
Edge
Underlying
Time value
4. 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.
Ratio write
Expiration
Good til cancel (GTC) order
reaking
5. The simultaneous purchase and sale of options of the same class (call or put - having same underlying) at the same strike prices - but with different expiration dates - selling the short-term option and buying the long-term option.
Broker/Dealer
Bull (or bullish) spread
Calendar spread
Rho
6. 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.
Condor spread
Long position
Broker/Dealer
Intrinsic value
7. The price that an owner of an option can purchase (call) or sell (put) the underlying stock.
Long position
Automatic exercise
Extrinsic value
Strike price
8. The use of money to create more money through an appreciating or income-producing asset.
Investment
Theoretical value (TV)
Volatility
Strike price
9. 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.
Carry/Carrying charge
Call Option
Butterfly spead (Put)
Short stock position
10. An option strategy that generally involves the purchase of a farther-term option (call or put) and the selling (writing) of an equal number of nearer-term options of the same type and strike price. (buying 1ITI May 60 cal[ far term portion of spread]
Time spread/Calendar spread/Horizontal spread
Synthetic short call
Synthetic Long call
Expiration date
11. Opening sale of a security.
Selling short
Adjusted Option
Synthetic short stock
Pin risk
12. 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.
Long position
Synthetic short stock
Debit spread
Theta
13. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.
Condor spread
Implied volatility
Clearinghouse
Bull spread (put)
14. 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
Collar
Strangle
Indexing
Equity option
15. Charge levied for the privilege ofborrowing money
Synthetic long put
Black-Scholes formula
Interest
Underlying
16. 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.
Butterfly spead (Put)
Combination
Calendar spread
Options pricing model
17. 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.
Butterfly spread (Call)
Hedging
Edge
Backspread
18. 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)
Last trading day
Pin risk
Out-of-the-money (OTM)
Synthetic short stock
19. 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.
Edge
Call Option
Bear market
Time value
20. An option that has intrinsic value
Reverse conversion
In-the-money option (ITM)
Put-call ratio
Leverage
21. A credit spread in which a decline in the price of the underlying security will theoretically increase the value of the spread. (buying 1 XYZ Jan 55 call and writing 1 XYZ Jan 50 call)
Bear spread (call)
Strike price
Hedge/Hedged position
Collar
22. 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
Early exercise
Ask/ask price
Volatility
Butterfly spread (Call)
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.
Box spread
Credit spread
Fill-or-kill order (FOK)
Combination
24. A position that will perform best if there is little or no net change in the price of the underlying stock.
Rho
Neutral spread
Expiration
FOK
25. 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.
Interest rate risk
Contract size
Extrinsic value
Bull spread (put)
26. 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.
Indexing
Synthetic short stock
Delta
Box spread
27. 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.
Arbitrage
Assignment
Investment
Analytics
28. 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.
Diagonal spread
Covered call/Covered call writing
Ratio write
Gamma
29. Received notification of an assignment by rhw options clearing corporation.
Bear spread (put)
Expiration month
Clearinghouse
Assigned
30. 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.
Butterfly spead (Put)
Cash-settled American index options (cash index)
At-the-money
Options pricing model
31. A measure of the volatility of the underlying security - derived by applying current prices rather than historical prices.
Short stock position
Backspread
Implied volatility
Reverse conversion
32. Procedure used by the options clearing corporation to exercise in-the-money options at expiration. (75 cents or more)
Theoretical value (TV)
Automatic exercise
Bull
Chicago Board Options Exchange (CBOE)
33. 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.
Theoretical value (TV)
Delta
reaking
Option
34. 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.
Options pricing curve
Put-call ratio
Clearinghouse
Straddle
35. A market drop in the price of a security
Indexing
reaking
Conversion
Broker/Dealer
36. A a feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.
Assigned
Early exercise
Put-call ratio
Good til cancel (GTC) order
37. 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.
Arbitrage
Underlying
Synthetic long put
Equivalent strategy
38. An option that can be exercised only at expiration. Usually expire the third Friday of every month
European-style option
Spread
Bear spread
Time spread/Calendar spread/Horizontal spread
39. 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.
Bear spread (call)
At-the-money
Exercise
Pin risk
40. 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)
Strangle
Expiration month
Bear spread (put)
Indexing
41. 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)
Expiration month
Vertical spread
Options pricing model
Backspread
42. Commodity trading advisor.
CTA
Spread
Conversion
Horizontal spread
43. An option on shares of an individual common stock.
ATM
Arbitrage
Equity option
In-the-money option (ITM)
44. The total number of outstanding option contracts in a given series
FOK
Condor spread
Underlying
Open interest
45. 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.
Leg
Clearinghouse
Expiration date
Fill-or-kill order (FOK)
46. Good Til Cancel
American-style options
GTC
Fences
Offer price
47. A strategy involving four options of the same type that span three strike prices. The strategy has both limited risk and limited profit potential.
Butterfly spread
Option
Strike price
Ask/ask price
48. 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
Synthetic short put
Iron butterfly
Fill-or-kill order (FOK)
Bull spread (put)
49. At the money
Time value
ATM
Synthetic short call
Rho
50. A short stock position and a short put position.
Early exercise
Synthetic short call
At-the-money
Iron butterfly