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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. 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)
AON
Box spread
Short
Options pricing model
2. A short stock position and a short put position.
Synthetic short call
Ratio write
Butterfly spread (Call)
Straddle
3. The total number of outstanding option contracts in a given series
Interest
Break-even point(s)
Open interest
Neutral strategy
4. 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.
Adjusted Option
Credit spread
Edge
Bear
5. 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 spread (put)
Bear
Expiration date
Chicago Board Options Exchange (CBOE)
6. 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.
Expiration cycle
Exercise
Rho
At-the-money
7. Commodity trading advisor.
Chicago Board Options Exchange (CBOE)
Expiration
American-style options
CTA
8. An order that is designated to be executed on or before the expiration date.
Future
Exercise
All-or-none order (AON)
Options pricing model
9. 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.
Equivalent strategy
Bear spread
Theta
Market on close (MOC)
10. 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.
Condor spread
Debit spread
Bear spread (call)
Delta
11. 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.
Bear spread (call)
Covered option
Cash-settled American index options (cash index)
Expiration
12. A long call position and a short put position.
Expiration time
Call Option
Synthetic long stock
Delta
13. 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.
Vertical spread
Put-call ratio
All-or-none order (AON)
Broker loan rate
14. This formula can be used to calculate a theoretical value for an option using current stock prices - expected dividends - the option's strike price - expected interest rates - time to expiration - and expected stock volatility.
Black-Scholes formula
Market on close (MOC)
Credit spread
Bear spread (call)
15. An agent who facilitates trades between a buyer and a seller and receives a commission for services.
Broker/Dealer
Neutral strategy
Extrinsic value
Neutral
16. An order to buy or sell a security that will remain in effect until the order is executed or canceled
Synthetic long stock
Offer price
Leverage
Good til cancel (GTC) order
17. 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.
Exercise
Investment
Leg
Assignment
18. Commodity trading advisor.
Calendar spread
Bull spread (put)
Indexing
CTA
19. 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)
Interest rate risk
Vertical spread
Adjusted Option
Good til cancel (GTC) order
20. A compilation of the prices of several common entities into a single number; ex (S&P 100 Index).
Exercise
Index
Indexing
Neutral strategy
21. Options contracts on the same class having the same strike price and expiration month. (all XYZ May 60 calls constitue a series.
Intrinsic value
Series of options
ATM
Arbitrage
22. A short stock position and a long call position.
Underlying
Clearinghouse
Index
Synthetic long put
23. The estimated value of an option derived from a mathematical model.
Gamma
Long position
Theoretical value (TV)
Condor spread
24. 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.
Backspread
Equity option
Analytics
At-the-money
25. An option on shares of an individual common stock.
Equity option
Synthetic short call
Edge
Bear spread
26. An option that can be exercised only at expiration. Usually expire the third Friday of every month
Reverse conversion
American-style options
Early exercise
European-style option
27. The sensitivity of an options theoretical value to a change in implied volatility.
Vega
ATM
At-the-money
Calendar spread
28. An option strategy that is neither bullish nor bearish.
Synthetic long put
Intrinsic value
Neutral strategy
Chicago Board Options Exchange (CBOE)
29. 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
Box spread
Option
Butterfly spread
CTA
30. Long-term equity anticipation securities are calls and puts with expiration's as long as two to three years.
Automatic exercise
Debit spread
Strangle
LEAPS
31. An order to buy or sell a security that will remain in effect until the order is executed or canceled
Options pricing model
Bull spread (put)
Good til cancel (GTC) order
Clearinghouse
32. An order to buy or sell at the last price on the close.
Broker/Dealer
Market on close (MOC)
Bear
European-style option
33. 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
Neutral strategy
Condor spread
Synthetic short stock
Put-call ratio
34. An investment strategy used by professional option traders in which a short put and long call with the same strike price and expiration are combined with short stock to lock in a price. (selling short 100 shares of XYZ stock - buying 1 XYZ May 60 cal
Good til cancel (GTC) order
Reverse conversion
Debit spread
FOK
35. A long stock position and a long put position.
Selling short
Expiration time
Equivalent strategy
Synthetic Long call
36. 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 spread (Call)
Good til cancel (GTC) order
Class of options
Butterfly spead (Put)
37. 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).
Time spread/Calendar spread/Horizontal spread
Hedge/Hedged position
Diagonal spread
Volatility
38. 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
Option writer
Bear spread
Collar
Time decay
39. The month during which the expiration date occurs
Synthetics
Time value
Strike price
Expiration month
40. 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)
Pin risk
Expiration date
Neutral
Reverse conversion
41. 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
Synthetic long stock
Analytics
Extrinsic value
42. Fill-or-kill order
Box spread
Neutral strategy
FOK
Time decay
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.
Ask/ask price
Synthetic long put
Bull spread (call)
Credit spread
44. An option that has no intrinsic value.
Out-of-the-money (OTM)
Edge
Index option
Adjusted Option
45. 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.
Rho
Offer price
Box spread
Vertical spread
46. Term used to describe how the theoretical value of an option 'erodes' or reduces with the passage of time. Time decay is specifically quantified by Theta.
Time decay
Rho
Debit spread
Open interest
47. Long-term equity anticipation securities are calls and puts with expiration's as long as two to three years.
Delta
Clearinghouse
LEAPS
Pin risk
48. The process by which the seller of an option is notified of the buyer's intention to exercise that option.
Interest rate risk
Assignment
Option writer
LEAPS
49. A term referring to all options of the same type- either calls or puts- having the same underlying instrument.
Black-Scholes formula
In-the-money option (ITM)
Class of options
Bull spread (put)
50. 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.
Debit spread
Butterfly spead (Put)
Interest
Exercise