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Options Trading
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industries
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business-skills
Instructions:
Answer 50 questions in 15 minutes.
If you are not ready to take this test, you can
study here
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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. Options that may be exercised on or before the expiration date.
FOK
Synthetic Long call
Short
American-style options
2. A type of order that requires that the order be executed completely or not at all.
Fill-or-kill order (FOK)
Option
Uncovered option/Naked option
Index option
3. The lowest price at which a dealer or trader is willing to sell a tradable instrument at a particular time.
Equity option
Ask/ask price
Future
Synthetic long put
4. The highest price a dealer is willing to pay for a security at a particular time.
Bid/bid price
Black-Scholes formula
All-or-none order (AON)
Arbitrage
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)
Vertical spread
AON
Reverse conversion
Pin risk
6. The date an option contract becomes void.
Interest rate risk
Early exercise
Cash-settled American index options (cash index)
Expiration
7. 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
Neutral strategy
Series of options
Expiration date
8. 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
Bear market
Iron butterfly
Uncovered option/Naked option
Synthetic long stock
9. Opening sale of a security.
Selling short
CTA
All-or-none order (AON)
Time decay
10. Received notification of an assignment by rhw options clearing corporation.
Ratio write
Short
Assigned
Break-even point(s)
11. 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.
Ratio write
Synthetics
Black-Scholes formula
Time value
12. Third Friday of expiration month
Last trading day
Diagonal spread
Time value
Collar
13. A position resulting from the sale of a contract or instrument that you do not own.
FOK
Options pricing model
Short
Short stock position
14. 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.
Synthetic short put
Iron butterfly
Extrinsic value
Analytics
15. 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
Bid/bid price
Interest rate risk
Historic volatility
Bear spread
16. The total number of outstanding option contracts in a given series
Open interest
Time decay
Premium
Backspread
17. 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
DPM
Strike price
Adjusted Option
18. The use of money to create more money through an appreciating or income-producing asset.
Edge
Time spread/Calendar spread/Horizontal spread
Implied volatility
Investment
19. 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
Iron butterfly
Fences
Cash-settled American index options (cash index)
Historic volatility
20. A compilation of the prices of several common entities into a single number; ex (S&P 100 Index).
Index
Adjusted Option
Hedging
Market on close (MOC)
21. Another name for calendar spread.
Future
Assigned
Horizontal spread
Equivalent strategy
22. 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.
Carry/Carrying charge
At-the-money
Index option
Open interest
23. An agent who facilitates trades between a buyer and a seller and receives a commission for services.
Option
Equity option
Broker/Dealer
Box spread
24. Amount by which an option is ITM.
Intrinsic value
Time decay
Time value
Bull (or bullish) spread
25. A market drop in the price of a security
Bear
Fill-or-kill order (FOK)
reaking
Ratio write
26. An adjective describing the belief that a stock or the market in general will neither rise nor decline significantly.
Neutral
Interest rate risk
Offer price
Delta
27. An order that is designated to be executed on or before the expiration date. (all or none)
Credit spread
Strike price
AON
Leg
28. Fill-or-kill order
GTC
Time value
Synthetics
FOK
29. The total price of an option: intrinsic value plus extrinsic value
Premium
Implied volatility
Neutral
Hedge/Hedged position
30. 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
Broker loan rate
Indexing
Option writer
31. An order that is designated to be executed on or before the expiration date. (all or none)
AON
Theoretical value (TV)
Expiration
Index option
32. 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
Edge
Interest
Condor spread
Bear market
33. A contract that gives the owner the right - if exercised - to buy or sell a security at a specific price within a specific time limit.
Series of options
Option
Covered option
Vega
34. The process by which the seller of an option is notified of the buyer's intention to exercise that option.
Underlying
Butterfly spead (Put)
Assignment
Box spread
35. An option that has intrinsic value
In-the-money option (ITM)
Last trading day
Horizontal spread
Spread
36. 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.
Leg
Backspread
Interest
Analytics
37. A contract that gives the owner the right - if exercised - to buy or sell a security at a specific price within a specific time limit.
Call Option
Rho
Covered option
Option
38. The seller of an option contract Who is obligated to meet the terms of delivery if the option is exercised.
Option writer
Ratio write
Expiration cycle
Class of options
39. Designated primary market maker.
Cash-settled American index options (cash index)
Long position
DPM
Theta
40. 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.
Bull
Volatility
Edge
Delta
41. 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.
Time decay
Hedging
Condor spread
Expiration
42. The process by which the seller of an option is notified of the buyer's intention to exercise that option.
Spread
Synthetic long stock
Short
Assignment
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.
Covered call/Covered call writing
FOK
Exercise
Time spread/Calendar spread/Horizontal spread
44. 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.
Black-Scholes formula
Gamma
Exercise
Edge
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.
Underlying
Expiration date
Short
Theta
46. The sensitivity of an options theoretical value to a change in implied volatility.
Conversion
Bear market
Fences
Vega
47. Calculations performed on updated prices.
Analytics
Bull spread (call)
Automatic exercise
Bear market
48. A short stock position and a long call position.
Short stock position
Synthetic Long call
GTC
Synthetic long put
49. A long stock position and a long put position.
Equivalent strategy
Collar
Synthetic Long call
Time spread/Calendar spread/Horizontal spread
50. Good Til Cancel
Combination
Option Chain
Bear spread (call)
GTC
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