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Test your basic knowledge |
Options Trading
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industries
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business-skills
Instructions:
Answer 50 questions in 15 minutes.
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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. The stock price(s) at which an option strategy results in neither a profit nor a loss.
Break-even point(s)
Underlying
Synthetic short call
Arbitrage
2. A spread in which the difference in the long and short options premiums results in a net debit.
AON
Gamma
Black-Scholes formula
Debit spread
3. A measure of the volatility of the underlying security - derived by applying current prices rather than historical prices.
Adjusted Option
Bull (or bullish) spread
Implied volatility
Interest
4. Received notification of an assignment by rhw options clearing corporation.
Interest rate risk
Fill-or-kill order (FOK)
Assigned
Synthetic long stock
5. The month during which the expiration date occurs
Premium
Index option
Expiration month
Index
6. An order to buy or sell at the last price on the close.
Market on close (MOC)
Good til cancel (GTC) order
Credit spread
Broker/Dealer
7. An order that is designated to be executed on or before the expiration date. (all or none)
Expiration date
AON
LEAPS
Option
8. 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.
Broker loan rate
Credit spread
Neutral strategy
Bear spread (put)
9. 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]
Class of options
Market on close (MOC)
Time spread/Calendar spread/Horizontal spread
European-style option
10. 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)
Collar
Bull spread (put)
LEAPS
American-style options
11. Options contracts on the same class having the same strike price and expiration month. (all XYZ May 60 calls constitue a series.
Equivalent strategy
Series of options
Out-of-the-money (OTM)
American-style options
12. Good Til Cancel
Investment
Bull
GTC
Offer price
13. 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
Bid/bid price
Uncovered option/Naked option
Straddle
Gamma
14. A short call position and a long put position.
Assignment
Backspread
Implied volatility
Synthetic short stock
15. 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.
Options pricing curve
Ratio write
Options pricing model
Put-call ratio
16. An option that has no intrinsic value.
Out-of-the-money (OTM)
Neutral spread
Edge
FOK
17. At the money
Time spread/Calendar spread/Horizontal spread
Assigned
ATM
Expiration date
18. An option that can be exercised only at expiration. Usually expire the third Friday of every month
Adjusted Option
European-style option
Equity option
Leverage
19. 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.
Butterfly spead (Put)
Equity option
Exercise
Option
20. Options contracts on the same class having the same strike price and expiration month. (all XYZ May 60 calls constitue a series.
FOK
Good til cancel (GTC) order
Expiration
Series of options
21. 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
reaking
Covered option
Butterfly spead (Put)
22. Good Til Cancel
Analytics
GTC
Synthetics
Diagonal spread
23. 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
Offer price
Expiration cycle
Neutral
Break-even point(s)
24. The use of money to create more money through an appreciating or income-producing asset.
Spread
Investment
American-style options
Fill-or-kill order (FOK)
25. 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)
Option Chain
Adjusted Option
Options pricing model
Fill-or-kill order (FOK)
26. The number of underlying shares covered by one option contract. (100 shares for one equity option)
Collar
Bear spread (put)
Theoretical value (TV)
Contract size
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.
Leg
Bid/bid price
Arbitrage
Synthetic Long call
28. 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
Volatility
Spread
Arbitrage
Combination
29. 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
Broker/Dealer
Hedge/Hedged position
Implied volatility
Bull (or bullish) spread
30. Fill-or-kill order
Index
FOK
Vega
Expiration date
31. 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.
Synthetic Long call
Debit spread
Delta
Bear market
32. 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.
Butterfly spread (Call)
Vega
Investment
Synthetics
33. A prolonged period of falling prices. A bear market in stocks is usually brought on by the anticipation of declining economic activity.
Equivalent strategy
Bear market
DPM
Vega
34. A spread in which the difference in the long and short options premiums results in a net debit.
Calendar spread
Covered option
Debit spread
Class of options
35. At the money
Interest
Clearinghouse
Bear market
ATM
36. The lowest price at which a dealer or trader is willing to sell a tradable instrument at a particular time.
Debit spread
Clearinghouse
Synthetic short put
Ask/ask price
37. 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)
Index
Class of options
Good til cancel (GTC) order
Bull spread (call)
38. 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.
Class of options
Leg
Open interest
Synthetics
39. 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
Implied volatility
Option
Butterfly spread (Call)
Neutral strategy
40. 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)
Intrinsic value
Covered call/Covered call writing
Long position
Bull
41. An order to buy or sell a security that will remain in effect until the order is executed or canceled
Good til cancel (GTC) order
FOK
Open interest
Neutral strategy
42. The process by which the seller of an option is notified of the buyer's intention to exercise that option.
Assignment
Time decay
Delta
Ratio write
43. Another name for calendar spread.
Covered option
Horizontal spread
Bear
Rho
44. 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
Analytics
Iron butterfly
Bid/bid price
Options pricing model
45. 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
Iron butterfly
Intrinsic value
Gamma
Fill-or-kill order (FOK)
46. A list of the options available for the underlying stock symbols in which you are interested.
Short stock position
Black-Scholes formula
Option Chain
LEAPS
47. The part of an options total price that exceeds its intrinsic value. Price of an out-of-money option consists entirely of time value.
Time value
Clearinghouse
Series of options
Broker loan rate
48. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.
Intrinsic value
CTA
Combination
Clearinghouse
49. A long call position and a short put position.
Synthetic long stock
Index
Leverage
Covered option
50. The purchase or sale of an equal number of puts or calls with the same underlying - stike price - and expiration.
Strike price
Straddle
DPM
Neutral
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