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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 adjective describing the belief that a stock or the market in general will neither rise nor decline significantly.
All-or-none order (AON)
Rho
Spread
Neutral
2. A prolonged period of falling prices. A bear market in stocks is usually brought on by the anticipation of declining economic activity.
Time decay
Interest rate risk
Investment
Bear market
3. An option on shares of an individual common stock.
Equity option
Butterfly spead (Put)
Bear spread (put)
Investment
4. 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)
Synthetic Long call
Straddle
Theoretical value (TV)
Covered call/Covered call writing
5. 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)
Rho
Last trading day
Credit spread
Bear spread (call)
6. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.
Strangle
In-the-money option (ITM)
Butterfly spead (Put)
Expiration time
7. An option that has no intrinsic value.
Interest rate risk
Out-of-the-money (OTM)
Synthetic long stock
Good til cancel (GTC) order
8. 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
Fill-or-kill order (FOK)
Collar
Time value
Last trading day
9. 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
Box spread
Vertical spread
Bid/bid price
Premium
10. 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)
CTA
Implied volatility
Market on close (MOC)
Adjusted Option
11. The number of underlying shares covered by one option contract. (100 shares for one equity option)
Contract size
Interest
At-the-money
Synthetic Long call
12. The sensitivity of theoretical option prices with regard to small changes in interest rates. Increases in interest rates lead to higher call values and lower put values. Lower interest rates do the opposite.
Covered call/Covered call writing
ATM
Rho
Option writer
13. 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.
Extrinsic value
Adjusted Option
Delta
Expiration date
14. Calculations performed on updated prices.
Iron butterfly
Analytics
Ratio write
Butterfly spread
15. A spread in which the difference in the long and short options premiums results in a net debit.
Chicago Board Options Exchange (CBOE)
Debit spread
Expiration month
Time value
16. The purchase or sale of an equal number of puts or calls with the same underlying and expiration - but different strike prices.
Leverage
Strangle
Assigned
Bull (or bullish) spread
17. 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.
Future
Box spread
Exercise
Expiration month
18. 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
Fences
Butterfly spread
19. Received notification of an assignment by rhw options clearing corporation.
Expiration cycle
Assigned
Vertical spread
Neutral spread
20. 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
Collar
Box spread
Condor spread
Uncovered option/Naked option
21. 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)
Hedging
Expiration time
Covered call/Covered call writing
Index
22. Amount by which an option is ITM.
Long position
Neutral spread
Straddle
Intrinsic value
23. 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.
Box spread
Diagonal spread
Bear
Hedging
24. A long call position and a short put position.
Fill-or-kill order (FOK)
Bear
Collar
Synthetic long stock
25. A position resulting from the sale of a contract or instrument that you do not own.
Short
Bull spread (call)
Synthetics
In-the-money option (ITM)
26. A graphical representation of the estimated theoretical value of an option at one point in time - at various prices of the underlying stock.
Ratio write
Put-call ratio
Synthetic short stock
Options pricing curve
27. Same as ask price
Condor spread
Offer price
Black-Scholes formula
Underlying
28. An option whose underlying asset is an index.
Index option
Rho
Backspread
Expiration time
29. 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)
Black-Scholes formula
Expiration
Leg
30. An order that is designated to be executed on or before the expiration date. (all or none)
Spread
AON
Expiration month
Expiration cycle
31. 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.
Neutral spread
Box spread
Extrinsic value
At-the-money
32. A facility that compares and reconciles both sides of a trade in addition to receiving and delivering payments and securities.
Equivalent strategy
Equity option
Clearinghouse
Synthetics
33. The seller of an option contract Who is obligated to meet the terms of delivery if the option is exercised.
Horizontal spread
Bull spread (put)
Option writer
Short
34. A measure of actual stock price changes over a specific period of time.
Neutral strategy
LEAPS
Short stock position
Historic volatility
35. An individual with the opinion that a security - or the market in general will decline in price; someone having a negative or pessimistic outlook.
Expiration
Combination
Bear
Reverse conversion
36. 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
Calendar spread
Box spread
Collar
Bear spread
37. 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
Historic volatility
Collar
Synthetic short stock
Chicago Board Options Exchange (CBOE)
38. 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.
Hedging
At-the-money
Synthetic short stock
Bear market
39. The part of an options total price that exceeds its intrinsic value. Price of an out-of-money option consists entirely of time value.
Bear spread (put)
Time value
Long position
Index option
40. 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
Equivalent strategy
Call Option
Combination
Bear spread
41. The total number of outstanding option contracts in a given series
Exercise
Carry/Carrying charge
Open interest
Backspread
42. The highest price a dealer is willing to pay for a security at a particular time.
Leverage
Bid/bid price
Synthetic short stock
Rho
43. 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.
Strangle
Credit spread
Bear spread (put)
DPM
44. A short stock position and a long call position.
Synthetic long put
Interest rate risk
Backspread
Combination
45. The seller of an option contract Who is obligated to meet the terms of delivery if the option is exercised.
Option writer
Arbitrage
Synthetic long put
Broker loan rate
46. An order to buy or sell a security that will remain in effect until the order is executed or canceled
European-style option
Broker/Dealer
Collar
Good til cancel (GTC) order
47. The time of day by which all exercise notices must be received on the expiration date.
Expiration time
DPM
Interest rate risk
Horizontal spread
48. A strategy that profits from a stock price decline. It is initiated by borrowing stock from a broker -dealer and selling it in the open market. This strategy is closed (covered) at a later date by buying back the stock and turning it to the lending b
Open interest
Short stock position
Option
Uncovered option/Naked option
49. The sensitivity of theoretical option prices with regard to small changes in interest rates. Increases in interest rates lead to higher call values and lower put values. Lower interest rates do the opposite.
Volatility
Fill-or-kill order (FOK)
Expiration date
Rho
50. 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.
Delta
Pin risk
Extrinsic value
Option writer